Kashkari Says Fed Shouldn’t Overreact to ‘Temporary’ Inflation

(Bloomberg) -- The Federal Reserve shouldn’t overreact to inflationary pressures that are likely to prove temporary, Federal Reserve Bank of Minneapolis President Neel Kashkari said.

“We shouldn’t overreact to what is likely going to be a temporary factor,” Kashkari said Monday in a Bloomberg Television interview with Kathleen Hays. “If we overreact by saying, ‘Let’s just change the path of monetary policy to try to deal with a one-time effect,’ that could lead to a worse long-term outcome for the economy.”

The U.S. central bank announced earlier this month that it would begin tapering the $120 billion-a-month bond-buying program it put in place last year in the early days of the Covid-19 pandemic. The planned pace of reduction puts it on track to cease purchases entirely by the mid-2022.

Since then, government data have pointed to intensifying inflation, prompting some former officials to call for the Fed to speed up the tapering process. A Nov. 10 Labor Department report showed the consumer price index rose 6.2% in the 12 months through October, marking the highest inflation rate since 1990.

Kashkari’s comments echoed similar remarks from his Richmond Fed counterpart, Thomas Barkin, who argued Monday it was too early to consider speeding up the taper. The Labor Department will release one more monthly report on consumer prices before Fed officials next gather to review policy options in December.

“If the need is there, we’ll do what we have to do,” Barkin said in a Yahoo! Finance interview. “But I personally think it’s very helpful for us to have a few more months to evaluate.”

Fed officials are balancing hot inflation with elevated joblessness as the labor market continues to recover from the pandemic. The U.S. unemployment rate fell to 4.6% last month, down from its peak of 14.8% in April 2020 but still well above the pre-pandemic rate of 3.5%. 

“We still have four to five million Americans who are out of work who otherwise would be working,” Kashkari said. “So, just to say, well, we just need to focus on inflation -- and ignore the labor market -- that’s only half of our mandate. And so we need to pay attention to both sides of this.”

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