The Minneapolis Fed president seeks to lower inflation by targeting wage growth.
Here’s a conversation with Minneapolis Fed President Neel Kashkari, moderated by SiouxFalls Business founder, Jodi Schwan.
Kashkari joined the video right around the 10 minute mark.
Some comments by Kashkari starting at the 13:00 minute mark caught my attention.
Wage Growth Too High
“A couple of years ago, I said, and my colleagues said some of these factors look like they are temporary or transitory. Supply chains are going to get sorted out. So maybe we do not need to overreact. Well, it took a lot longer than we expected. And now you are seeing wages climbing. And wages are climbing trying to catch up to that inflation rather than leading the inflation. But now wage growth is at a level that it is actually too high to be consistent with our 2 percent inflation target.”
Traditional Tools Not Working
“This is a very complicated economic environment that we are in, in terms of our ability to analyze it using the traditional analytical tools that we have”
Service Economy Not Slowing Is Concerning
“The services economy continues to be very strong. We are not yet seeing much of a sign of our interest rate increases slowing down the services side of the economy. And that is concerning to me.”
Getting Inflation Down More Important Than Avoiding Recession
“We would like to avoid a recession but we know we have to get inflation down. Getting inflation down is job one.”
Monetary Policy Cannot Address Structural Issues
“Monetary policy can try to bring the economy into balance in the short run. But the long run structural issues, monetary policy cannot do anything about.”
Demographic Labor Challenges
“All advanced economies around the world are facing labor challenges because advanced economies are having fewer kids than prior generations. And those are fewer workers to produce things and there are fewer workers to buy things in the future.”
Immigration Is the Only Answer
“Japan is trying to pay their workers to have more babies. It doesn’t work. The only answer is immigration. This is a structural issue that we as a country have to get our head around, sensible immigration policy that meets the needs of our economy. I am not making a political statement . I have met with Republican and Democrat leaders who all understand this. It’s simply math.”
March Rate Hike and Dot Plot
“There is a lot of attention on March. Is it going to be 25 [basis points] or is it going to be 50? I am open minded at this point, about whether its 25 or 5o basis points. To me, what’s much more important than whether it’s 25 or 50 is what we signal in what we call the dot plot. In December, when I jotted down my dots, I jotted down that I thought we would get rates up to 5.4 percent and then hold them there for an extended period of time. And I was on the more hawkish distribution among my colleagues. Given the data we have gotten in the last month, which has been a very strong jobs report, higher inflation that we expected, and these are concerning data points, suggesting that we are not making progress as quickly as we like. At this point, I have not decided what my dot is going to look like, but I lean towards continuing to raise further. I would continue to push up my policy path.”
That took things to the 25:30 mark followed by questions from the audience.
Targeting Wage Growth
In response to a question, Kashkari said “We would need to get wage growth closer to 3 percent to be consistent to our 2 percent inflation target. I don’t know how embedded [wage growth is] but it is our job to make sure that it does not become embedded.”
Demographically Sobering Thoughts on US Employment in the Next Five Years
I investigated the poor demographic picture that Kashkari mentioned in my post Demographically Sobering Thoughts on US Employment in the Next Five Years
If the Fed was not so hell bent on producing two percent inflation while not understanding what it really is or the exponential nature of what they seek, perhaps more people would want to have kids.
The same applies to government control over our lives.
This post originated on MishTalk.Com.
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Mish
You were sounding sensible, and suddenly:
“
work. The only answer is immigration. This is a structural issue that we
as a country have to get our head around, sensible immigration policy
that meets the needs of our economy. I am not making a political
statement . I have met with Republican and Democrat leaders who all
understand this. It’s simply math.”
determinants of inflation and that has not been the case for a long time.”
now, M2 [money supply] does not really have important implications. It is
something we have to unlearn.”
just very, very low”.
The rate-of-change in currency in circulation is back to 2010
levels. The 6-month roc in our means-of-payment money has turned negative. When
the 10-month roc turns negative there will be a recession. But now the FED
won’t know about it until after its already begun.