Fed’s Kashkari Says US Inflation Rate to Keep Going Up

Last Sunday, Federal Reserve Bank President Neel Kashkari said US inflation will keep going up. Over the next few months, he said that he expects higher inflation to continue over the next few months.

He also warned that the Federal Reserve should not overreact. After all, he expects the elevated inflation rate is likely temporary. 

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‘Math Suggests’ US Inflation To Keep Getting Higher

Kashkari, who presides over the Minneapolis Federal Reserve, said that the US inflation rate will keep rising. “The math suggests we're probably going to see somewhat higher readings over the next few months before they likely start to taper off.

But my view is we also need to not overreact to some of these temporary factors, even though the pain is real,” Kashkari said.

When the Fed ends its bond purchases next year, Kashkari expects more clarity on the economic outlook. He said he’s keeping an open mind on the timing of any interest rate hikes that will happen.

Raising the interest rate can remove some of the pressure of rising inflation. 

US Inflation Is High Due to Pandemic, Not the Admin’s Policy

White House economic advisers defended the President’s policies on Sunday amid rising inflation. They said that inflation was a result of the COVID-19 pandemic.

Inflation is not a result of the administration’s policies. US consumer prices posted their highest increases in the past 31 years. Gas prices and mortgage rates led the way. 

However, Kashkari still wants to keep an open mind about the matter. Even as the COVID-19 pandemic begins to ease, “we are getting these mixed signals out of the economy,” Kashkari said.

For example, wages continue to rise. However, the US economy is also supporting between 5 to 7 million fewer jobs compared to pre-pandemic levels.

The percentage of Americans who have jobs or looking for work is 61.6%. This is lower compared to pre-pandemic levels. 

Chicago Fed President Echoes Kashkari’s Opinion

Meanwhile, Chicago Fed President Charles Evans agrees with Kashkari. Both presidents are among the most dovish policymakers among Federal Reserve officials.

They expect to get more clarity on the post-pandemic economic outlook by next summer. This is when the Federal Reserve will conclude its bond-buying programs.

The US central bank propped up the economy during the start of the pandemic by buying trillions of dollars of bonds. By June 2020, the Fed stabilized its bond purchases to $120 billion a month. 

Evans also said that he also believes that COVID-19 is driving up inflation. Consequently, the pandemic-driven supply issues will fade out in a few months.

“By the spring we are going to know a lot more about this, and if I'm still kind of making the same excuses, boy they better be really good excuses because it's just not going to sound quite right,” he told the media.

Fed Winding Down Its Bond Buying Program

The Fed announced earlier this month that it will wind down its bond-buying program. 

The Fed said last year that it will continue buying bonds until the economy stabilizes. This meant reaching a stable 2% inflation rate amid a healthy labor market. Almost a year later, the Federal Reserve’s total bond balance sheet is around $8 trillion.  

The Fed announced it will reduce the number of purchases by $15 billion per month beginning November. The agency hopes to make “similar reductions in the pace of net asset purchases will likely be appropriate each month.”

Watch the Face The Nation video reporting that Minneapolis Fed President Kashkari expects prices to continue rising “over the next few months”

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Do you agree that inflation will likely go higher in the next few months? But do you also feel that inflation will go down once the pandemic goes away?

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