Federal Reserve Bank of Minneapolis President Neel Kashkari stated Sunday that the current level of inflation was “very concerning” as it is spreading more widely across the economy.
It’s very alarming. We continue to get inflation readings, new data as recent as this week, and it keeps us surprised. It’s higher that we expect,” Kashkari stated during a appearance on CBS’ Face The Nation. It’s not limited to a handful of categories. It is spreading more widely across the economy, and the Federal Reserve is taking urgent action to bring it under control.”
Kashkari stated that while wages are rising for many Americans, so is the cost of goods and services. This means that workers are experiencing a “real wage reduction” as inflation is so rapid. He stated that wage-driven inflation isn’t happening and that the increase in goods costs is partly due to disruptions within the supply chain, such as the pandemic or the war in Ukraine.
He stated that while wages are increasing for most Americans, they aren’t rising as fast as inflation. Therefore, most Americans’ real wages and real incomes are falling. They are seeing their real wages drop because of the rapid growth in inflation. I don’t mean wage-driven inflation, where wages rise quickly and lead to higher prices. However, that is not what we are seeing yet. Wages and high prices are trying to catch up with these high prices. Supply chains and the conflict in Ukraine are two of the main factors behind these high prices. We must balance the economy before we can see a return to a wage-driven inflation story.
He noted the latest results of the economic costs index and said that while it was good for Americans to be earning more, the Federal Reserve can’t wait for the supply chains to adjust in order to bring down prices.
Kashkari claimed that the Sens. The Inflation Reduction Act, which Chuck Schumer (D-NY) and Joe Manchin (D-W. Va.) dubbed, “is not going to have much impact on inflation” in the next few years. It will be up to the Federal Reserve to adjust monetary policy to lower it.
“Over the short-term, the demand side effects completely overwhelmed the supply side effects. So, I think that if I look at the bill being considered by your senators, my guess would be that it won’t have much impact on inflation over the next few years,” he stated. It won’t affect my analysis of inflation in the next few years. It may have some long-term effect but in the short term, we have an acute mismatch of demand and supply. The Federal Reserve must be able bring that down.
The White House has refused to admit that the U.S. is in recession, and has been debating how to define the term. Kashkari claimed that inflation is so severe that it doesn’t matter whether we use the term recession. He also argued that serious work must be done to reduce it.