Minneapolis Fed’s Kashkari: Inflation is ‘Still Too High’

Saying that inflation remains a problem, Minneapolis Federal Reserve President Neel Kashkari said Wednesday that price growth is still a concern despite the latest economic data coming in cooler than economists predicted.

“Inflation is still too high,” Kashkari told CNBC’s Steve Liesman in an interview at a Council on Foreign Relations event in New York.

Kashkari’s comments after Wednesday morning’s release of the August personal consumption expenditures price index, known as the Fed’s preferred gauge of inflation.

CNBC reported the core version of the index, which strips out volatile food and energy prices, came in lower than economists forecasted at 3% on an annual basis.

Elevated for Five Years

“There are many different measures of inflation, but it’s running at around a 3% rate,” Kashkari said in the interview. “It’s been elevated now for more than five years. I didn’t think the inflation data today really changed that story for me very much.”

The Fed official also said other economic data released Wednesday on consumer spending and gross domestic product showed the economy is “resilient.”

CNBC noted that during a roundtable a few years ago, Kashkari said he heard from a labor union leader that inflation was “worse” than a recession for the union’s members. Kashkari said that conversation has influenced how he views the trade-offs between stability in prices and employment.

The central bank this month issued its first interest rate hike in three years in an attempt to combat higher-than-preferred price growth. The Fed also signaled that another increase could be on the horizon, CNBC reported.

Kashkari said on Wednesday that the labor market looked “pretty good” but not “great.”

Earlier in the day, management services firm ADP announced that private payrolls expanded more than economists predicted in September.

AI Concerns

In the interview with CNBC, Kashkari said the economy’s strength in the face of shocks over recent years has led him to raise his estimate for the neutral funds rate to 3.25%. He said the neutral rate likely is elevated temporarily because of demand for investment capital amid the artificial intelligence boom.

Should the AI buildout succeed, Kashkari said it can drive productivity in the U.S. economy. But he added he has concerns that the amount of corporate investment will not have the intended result or that it will not happen as soon as hoped — both of which could weigh on the broader economy.

“The fruits have not yet borne out,” Kashkari said. “If this ends up being massive investment that is not nearly as productivity-enhancing as we assume, then this will have been malinvestment, and then there could be big economic consequences for the economy writ large.”

Kashkari said the AI industry may need to learn to be more “efficient” with money and resources, CNBC said.