Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, is feeling pretty good about where the economy is headed. Speaking at a virtual town hall with the Wisconsin Bankers Association on Wednesday, he acknowledged the obvious—inflation is still "too high"—but emphasized it's at least moving in the right direction.
The Fed chief was particularly bullish on seeing inflation cool down in housing-related sectors, which have been a stubborn contributor to overall price pressures. But he's not ready to declare victory just yet. "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 admitted. Still, he reaffirmed the Fed's commitment to hitting its 2% inflation target and said he doesn't expect inflation to come roaring back.
On the tariff front, Kashkari noted that their impact on consumer prices has been smaller than many feared. That's the good news. The less-good news? "Another price bump related to tariffs could happen," he warned, noting that we're still in the early innings of understanding the full consequences of these trade policies.
As for the broader economy, Kashkari described it as "quite resilient," pointing out that growth "has not slowed as much as expected." He also characterized the current recovery as "K-shaped," a way of saying that different sectors and income groups are experiencing very different economic realities right now.
December's Inflation Picture: Mixed Signals
Kashkari's comments follow December's inflation report, which showed prices holding relatively steady. The so-called "super core" measure—core services inflation excluding housing—softened to 2.76% from previous highs. That sounds encouraging, but Jeffrey Roach, Chief Economist for LPL Financial, cautioned that the monthly rate remains "a bit too hot."
The central bank is widely expected to hold rates steady for now. Prominent strategist Charlie Bilello has been vocal about keeping politics out of monetary policy decisions as the Fed navigates this tricky environment.
Meanwhile, Kevin Hassett, Director of the National Economic Council, defended the strength of the U.S. economy under President Donald Trump, arguing that it's thriving despite the Federal Reserve maintaining tight monetary policy.