Minneapolis Federal Reserve President Neel Kashkari said Wednesday that price pressures remain a significant concern despite the latest inflation data coming in cooler than economists anticipated.
“Inflation is still too high,” Kashkari told CNBC’s Steve Liesman during an exclusive interview at a Council on Foreign Relations event in New York.
The remarks followed the release of the August personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge. The core measure, which excludes volatile food and energy costs, rose 3% annually—below forecasts.
“There are many different measures of inflation, but it’s running at around a 3% rate,” Kashkari noted. “It’s been elevated now for more than five years. I didn’t think the inflation data today really changed that story for me very much.”
Kashkari added that other reports released Wednesday on consumer spending and gross domestic product indicate the economy remains resilient.
Reflecting on a roundtable discussion from several years ago, Kashkari recalled a labor union leader telling him that inflation was “worse” than a recession for their members. He said that conversation continues to shape his view of the trade-offs between price stability and employment.
The Federal Reserve recently enacted its first interest rate hike in three years to combat persistent price growth and signaled that further tightening remains possible.
On Wednesday, Kashkari characterized the labor market as “pretty good” but not “great.” Earlier in the day, payroll processor ADP reported that private-sector job growth in September exceeded economist expectations.
AI Concerns
Kashkari said the economy’s resilience amid recent shocks has led him to raise his estimate for the neutral federal funds rate to 3.25%. He suggested the neutral rate is likely elevated temporarily due to heightened demand for investment capital driven by the artificial intelligence boom.
If the AI buildout succeeds, Kashkari said it could boost U.S. productivity. However, he expressed concern that the massive corporate investment may not yield the anticipated productivity gains—or may not materialize as quickly as hoped—both scenarios that could weigh on the broader economy.
“The fruits have not yet borne out,” Kashkari said. “If this ends up being massive investment that is not nearly as productivity enhancing as we assume, then this will have been malinvestment, and then there could be big economic consequences for the economy writ large.”
Kashkari suggested the AI industry may need to learn to deploy capital and resources more efficiently, a necessary adaptation in an era of tighter monetary policy.
He acknowledged that Federal Reserve rate hikes may not significantly slow spending by hyperscalers. However, the former Goldman Sachs and Pimco executive said higher borrowing costs could help temper excesses in other sectors of the economy.