Fed’s Kashkari optimistic on economy, sees inflation easing

Investing.com -- Federal Reserve Bank of Minneapolis President Neel Kashkari expressed optimism about the U.S. economic outlook on Wednesday, stating he expects continued growth and declining inflation.

"My outlook for the U.S. economy is one of pretty good growth going forward," Kashkari said during a virtual event. "I think inflation is heading down...The question is, is it going to be two and a half percent by the end of the year, something short of that, or something above that? I don’t know."

Kashkari noted that while inflation remains "too high," it is moving in the right direction. He emphasized that the Fed remains committed to its 2% inflation target and does not expect inflation to surge again. The central banker appeared most confident about easing inflation in housing-related sectors.

The Minneapolis Fed president described the overall economy as "quite resilient," pointing out it "has not slowed as much as expected." He also characterized the current economic situation as "K-shaped," suggesting uneven recovery across different segments of the economy.

Regarding monetary policy, Kashkari questioned how tight current policy actually is and stated he doesn’t see a need for quantitative easing. He clarified that the current Fed balance sheet expansion should not be considered quantitative easing.

On tariffs, Kashkari observed less pass-through to consumer prices than anticipated, though he warned "another price bump related to tariffs could happen." He added that while tariffs "haven’t been the gut punch many feared," their long-term impact is still unfolding.

Kashkari welcomed the recent decline in unemployment and emphasized that the Fed needs to monitor both sides of its mandate - employment and price stability - which he described as being "in tension" with each other.

The Fed official noted that households currently have "pretty good balance sheets" and he hasn’t observed anything "very alarming" in consumer borrowing patterns. He identified inflation as the main driver of financial distress thus far.

Addressing other topics, Kashkari stated that most business AI use remains experimental and is not yet leading to layoffs. He also described cryptocurrency as "basically useless" for consumers.

Kashkari declined to comment on the Trump administration’s plans regarding mortgage bonds but identified supply as the "biggest barrier" to the housing market.

He concluded by expressing confidence that Fed officials will "continue to make the best decisions they can" and emphasized the importance of central bank independence, stating, "We all believe an independent central bank makes the best policy."

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