Neel Kashkari, Federal Reserve Bank of Minneapolis
Brendan McDermid | Portal
If you’re debating whether or not the US is in a recession, you’re asking the wrong question, according to a senior Federal Reserve official.
“Whether or not we’re technically in a recession doesn’t change my analysis,” Minneapolis Federal Reserve Bank President Neel Kashkari told CBS’ Face the Nation on Sunday. “I am concentrating on the inflation data. I’m concentrating on the payroll data. And so far, inflation continues to surprise us on the upside. Wages continue to rise.”
Last month, US inflation jumped to a four-decade record high, rising 9.1% year-on-year. At the same time, the labor market remained strong: non-farm payrolls rose by 372,000 last month, along with a low national unemployment rate of 3.6%.
On Thursday, new data from the Labor Department showed signs of a slowdown in the job market, with initial jobless claims hitting the highest level since mid-November. Still, according to Kashkari, the job market is “very, very strong.”
“Typically, recessions show high job losses, high unemployment, which is terrible for American families. And we don’t see anything like that,” he said.
The problem, Kashkari said, is that even in a strong labor market, inflation is outpacing wage growth — giving many Americans a functional “wage cut” as the cost of living rises nationwide. Solving this problem by reducing inflation is currently the Federal Reserve’s top priority, he added.
“Whether or not we’re technically in a recession doesn’t change the fact that the Federal Reserve has its own job to do and we’re committed to doing it,” Kashkari said.
The Bureau of Economic Analysis reported Thursday that the country’s gross domestic product contracted for a second straight quarter, often a warning sign that accompanies economic recessions. For Kashkari, that could even be a good thing: an economic slowdown could help bring inflation down to the point where it no longer outstrips wage growth.
“We definitely want to see a slowdown [of economic growth]”, he said. “We don’t want the economy to overheat. We would love it if we could move to a sustainable economy without throwing the economy into recession.”
This presents the Fed with a major challenge. Kashkari acknowledged that economic slowdowns tend to be very difficult to control, “especially when it’s the central bank that is causing the slowdown.”
Still, he said, the bank will do whatever is necessary to tame inflation.
“We will do everything we can to avoid a recession, but we are committed to bringing down inflation and we will do what we have to do,” Kashkari said. “We are a long way from achieving an economy that is back at 2% inflation. And that’s where we need to get to.”