'Labor market weakness unnecessary … inflation has missed target for 5 years'

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, speaks at a Securities Industry and Financial Markets Association conference on the Troubled Asset Relief Program in New York in November 2008. [Getty Images]
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, speaks at a Securities Industry and Financial Markets Association conference on the Troubled Asset Relief Program in New York in November 2008. [Getty Images]

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Thursday (local time) that the key question is how high the benchmark interest rate must rise to bring inflation back to its target level.

Speaking to Bloomberg TV that day, Kashkari said the Fed would "do what is necessary to bring inflation back down to target." "Ultimately, the question is how high we need to raise rates — and I don't know the answer to that," he said.

Asked whether taming inflation would require accepting a weaker labor market, Kashkari said that was not necessarily the case. "I don't think the labor market today is a primary driver of inflation," he said, adding, "so I don't think that pain is necessary."

However, Kashkari said he did not want to rule out the possibility, and cited the Fed's dual mandate of maximum employment and price stability. "One side of the dual mandate — employment — looks quite healthy right now," he said. "But the other side — inflation — has missed the target for five years."

On the Fed's ability to respond to rising oil prices, Kashkari said a genuine one-time supply shock would be manageable. "If it's truly a one-time supply shock, that's fine," he said. "But if a one-time supply shock lasts five years, ultimately it falls on the Fed to bring inflation back down."

He also said the US economy was showing stronger resilience than expected, while noting that monetary policy still has room to work its way through the economy.


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