The head of the Federal Reserve Bank of Minneapolis cautioned the Fed about lowering interest rates too quickly, noting that the Fed’s goal to reduce inflation took precedence over avoiding a recession, The Wall Street Journal reported Tuesday.
Neel Kashkari said cutting interest rates amid weak economic conditions soon after inflation begins to decrease would be a “mistake,” mirroring a move made in the 1970s that ultimately led to inflation spiking once again, the WSJ reported. Kashkari’s statements echo Fed Chair Jerome Powell’s hardline anti-inflation stance, as the chairman has repeatedly committed the Fed to bring inflation down regardless of secondary effects.
“I think a hard landing is substantially more likely than a soft landing,” said Lawrence Summers, former Treasury Secretary under Bill Clinton, speaking in a WSJ interview alongside Kashkari on Tuesday. “I think if inflation is going to come down in two or three years rather than the 10 [seen in some past crises], that’s likely to be in the context of a recession not in the context of a smooth path.”
Inflation held relatively steady overall in August, near 40-year highs at 8.3% year-on-year, shattering investor expectations of a drop and motivating the Fed to hike interest rates by 0.75% for the third time in four months. Although overall inflation remained relatively steady off the back of declining energy costs, so-called core inflation, which measures inflation without accounting for more-volatile food and energy prices, was up from 5.9% in July to 6.3% in August.
Summers estimated that the odds of inflation coming to 2% within two and a half years while the unemployment rate stayed below 4.5%, less than one-in-four, the WSJ reported. While the Fed is doing what it can to reduce the chances of a hard landing, Kashkari claimed that it would need help to make that happen.
“I think a soft landing is still possible, and certainly we will work very hard to try to achieve it, but a lot of it is out of our control,” said Kashkari in the WSJ interview. Without assistance from the private market in the form of reduced supply, inflation would likely need to be brought down purely through Fed rate hikes that reduced demand, which Kashkari admits carried a significant chance of inducing a recession.
Neither the Federal Reserve nor Kashkari immediately responded to the Daily Caller News Foundation’s request for comment.
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