CNBC's full interview with Minneapolis Fed President Neel Kashkari

[00:00:00] Speaker 1: Joining me right now at the Aspen Economic Strategy Group Forum, Neil Kashkari is here. He's the president, of course, of the Minneapolis Fed, and there is so much to talk to you about. I don't even know where you want to start, but maybe we'd start with what's actually just happening even inside the Fed because there's a new opening, and then there's all the talks about the Kevins and what that means. And I'm curious to see somebody who's on that board what it feels like. [00:00:26] Neil Kashkari: It's uncertain. I mean, there's a lot. The Fed's in the news for a lot of reasons. Outside of just economics, and so that can be a distraction, and so it's just a reminder, keep focusing on the data, keep focusing on our jobs, and that's what we have to do, [00:00:37] Speaker 1: and that's what we are doing. Okay, so Great Path, of course, is the ultimate question that you guys have to solve. Yep. You know, the president calls Powell too late constantly. The numbers, by the way, now that they continue to get revised downward, I think there's a group of people who increasingly look at those numbers and say, maybe he is too late. What do you think? [00:00:56] Neil Kashkari: Well, there's two categories of data that I'm focused on. There's a bunch of data that I know and that I've got confidence in, and there's data that I don't know and we're not going to know for a while. The data that I think we know is that the economy is slowing. Housing services inflation is gently declining. Non-housing services inflation is coming down. Wage growth is coming down. We've seen the jobs number and consumer spending is cooling. All of that suggests the real underlying economy is slowing. I've got confidence that that is happening. The part that I don't have confidence yet is what are the ultimate effects of tariffs going to be on inflation. And what I'm realizing is we may not know the answer to that for quarters or a year or more. And that tells me as one policymaker, I need to start leaning more on the data that I've got confidence in. The economy is slowing. And that means in the near term, it may become appropriate to start adjusting the federal funds rate. [00:01:47] Speaker 1: If that's true, do you think you were wrong to hold off thus far? [00:01:51] Neil Kashkari: No, I don't think so at all. I mean, I think the economy has held up remarkably well. I think these tariff shocks are unlike anything that we've seen in 100 years, virtually. And it's taken a while for businesses to try to process it, for policymakers to try to process it. And there's just been delays. And if you look at the average effective tariff that's being paid at the border, it's around 10%. It's been climbing now month after month. It's well short of the 16% headline rate. And so should we react as policymakers to the headlines, or should we react to what's actually affecting the economy? And that's what's making these judgments difficult. [00:02:26] Speaker 1: We've been talking one morning about something interesting, which is why do you think companies have not taken up price in the way they did during the pandemic? Meaning during the pandemic, companies took up price almost in advance of inflation that they thought was coming. With the tariffs this time, that has not been the case. [00:02:41] Neil Kashkari: Well, I think it's a few different reasons. One is once there's a pandemic that everybody can see, and it's nobody's fault, it's just a terrible thing that's happening to all of us, it's easy to say, hey, it's not my fault. I think tariffs are more complicated. Are your competitors going to do it or not? You know, I was in Montana recently, a small business. She runs a small restaurant company. I said, how did you protect yourself against tariffs? She said in late January, she bought a year's worth of bamboo shoots from abroad and stored them to protect her and her customers from tariffs. It's remarkable that that happened at such a little company and at big companies. So that's also why we have not yet seen the full effects yet. People are working down these inventories. [00:03:20] Speaker 1: And so when you say you're not going to know it, 12 months, what do you think happens between now and the next 12 months? [00:03:25] Neil Kashkari: Well, I think right now the economy is slowing, and I think that we're going to have to respond to that. As the inflation data starts to come up, we're seeing it now in core goods. But how high is that going to get? Is it going to spill over into other categories? And is it going to be persistent? We're not going to know the answer to that for a long time. [00:03:40] Speaker 1: The other piece of this is whether you think the tariffs are persistent, meaning whether you think they go up, they go down, they disappear. I mean, I think part of what the market is doing right now is to some degree discounting that the tariffs, at least as we know them today, stay that way. [00:03:53] Neil Kashkari: Well, I'm assuming the tariffs will be persistent. Whether the tariff effects on inflation are persistent is the question that central bankers care a lot about. And that we're not going to know for a long time. And does it bleed over into inflation expectations? So the path that I think about, you know, I put down two rate cuts in my December last year, December summary of economic projections for 25. I maintained two in March. I maintained two in June. Two still seems reasonable to me for this year. [00:04:19] Speaker 1: Before the end of the year, so two more. Potentially. [00:04:20] Neil Kashkari: But now we've got a lot of data to come in. But sitting here today, I could see two rate cuts this year. But if it turns out that tariffs are having a bigger effect on inflation and it's more persistent, we could do one or more rate cuts and then we could pause. You know, if inflation really ticks up because of tariffs, we could even then raise again. The tariffs are just such an unknown right now what they're ultimately going to do to the economy. I don't want to make any promises about the longer term future. [00:04:46] Speaker 1: Becky's got a question back in New York. Becky. [00:04:48] Speaker 3: Andrew, thanks. Neil, what you said, I'm just trying to put it all together. This idea that, OK, you're the second person this morning who says they've spoken with business people who really hoarded a lot of stuff, brought things in in advance, so they haven't had to pass costs on to their customers yet because they're still working down that inventory. We heard the same thing from former Governor Sununu this morning. He's been talking to people about that. That makes you think that inflation could pick up. This idea of cutting rates and then turning around and raising them again later, I always thought you guys at the FOMC were really opposed to doing something like that because it looks like you made a mistake if you turn around and reverse course a month later. [00:05:27] Neil Kashkari: I agree. I mean, this is what makes it difficult, Becky. I would love to not have to do that. But I'm realizing that these tariff effects are going to take a lot longer to really become clear. And if virtually all the other economic data is pointing to a cooling economy and a slowing economy, how long can we wait until the tariff effects become clear? That's just weighing on me right now. And so if the best of all the options is we make some adjustments and then we have to pause or even then we have to reverse course, that might be better than just sitting here on hold until we get clarity on tariffs. [00:06:01] Speaker 4: And, you know, suddenly everybody knows what the BLS is. And I'm just wondering, did you take those numbers with a grain of salt? Have you been doing that for a while, the initial numbers? Did you know that the rates were 60% and it's snail mail? I mean, if you can get a $240,000, you know, job revision in two months just out of the blue, that makes your job so much harder. And I don't know, it's like you're, you know, you're trying to stand on something and it's, you know, you're on roller skates or something. The rug can just be pulled out from under you. And it makes it harder. I mean, something needs to be updated, no? And it's an important number. It's what you use. [00:06:51] Neil Kashkari: It's a very important number. It's a very important number to me and to my colleagues. But we knew all those things that you just said. We knew that there were big revisions. We knew that the survey response rates were going down. These are conversations that I have with my economists all the time. And that's why I look at a lot of other data sources, as do all my colleagues on the FOMC, to get an underlying view of where's the labor market going. You know, if you want to look at supply and demand in any market, look at the price. The price of labor is wages and wage growth is declining. It's been declining for some time. That tells me, yes, the labor market is cooling. [00:07:25] Speaker 1: Neil, I want to show you, though, what Janet Yellen said about the firing of the head of BLS yesterday and this conversation about it being political. Take a look at what you had to say about it. [00:07:35] Speaker 5: Well, I was appalled. You know, our statistical agencies have set the gold standard globally for the quality of our statistics. They're universally trusted and have never, to the best of my knowledge, been subject to political manipulation. It's all but impossible that there could be, given the controls in this system, political manipulation. And to me, this was a temper tantrum being thrown by a president who doesn't like what the statistics say about the performance of the economy. [00:08:23] Neil Kashkari: What do you think of that? It's not for me to comment on the president's personnel choices. I have no I had no reason to doubt the integrity of the BLS data. And, you know, we'll see who the president appoints to succeed the person that he fired. But ultimately, we're going to look at their data. We're going to look at all the data we can get, all the conversations we have with businesses. All of this goes into our process to try to assess the economy. [00:08:46] Speaker 1: Do you think there's now going to be a question about the credibility of the data? I mean, is that is that something that when you talk to your economists and analysts about in the future that there's going to be an overhang? I mean, I was talking to a CEO here who said, look, you know, China would come out with numbers every month and then there'd be a conversation about all those numbers real or are they not? And the question wasn't whether they were tabulated properly as a function of whether the mail came in properly that month and they're going to be revised was whether they're being made up or not. [00:09:13] Neil Kashkari: Right. I don't I'd be very surprised about that. Getting to that extreme. Ultimately, you cannot fake economic reality. But even if in the worst case scenario, imagine that numbers are being faked for anybody's political benefit. People are going to feel what they feel. Companies are either going to be hiring or they're not. And so Americans are going to feel the economy. And so convincing them that inflation is not real is not a very effective strategy. Convincing somebody that the jobs number are better than they really are. I don't think it's actually going to work. So I don't even see the point of that. [00:09:45] Speaker 1: You're going to get a new voting member very quickly. It sounds like from the president. Maybe a temporary person is what he seemed to suggest, but maybe not somebody permanent. I don't know. What is that? What are the dynamics of that going to be like, you think, in terms of how votes get taken? And also, how much influence does one or two people actually have in the end? [00:10:03] Neil Kashkari: You know, somebody has to win on the argument, right? Everybody's at the table. There's 19, 18 of us now that Adriana resigned. But 19 of us at the table, all making our best case about what's happening in the economy. And you have to persuade your colleagues. And if this person comes in and makes great arguments that we all find very persuasive, they can have a lot of influence. Kashkari, thank you. [00:10:22] Speaker 1: Thank you. It's great to see you. Appreciate it.