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Minneapolis Federal Reserve President Neel Kashkari said Wednesday that price growth remained a concern despite the latest data coming in cooler than economists predicted.
“Inflation is still too high,” Kashkari told CNBC’s Steve Liesman in an exclusive one-one-one interview as part of a Council on Foreign Relations event in New York.
Kashkari’s comments follow Wednesday morning’s release of the August personal consumption expenditures price index, known as the Fed’s preferred gauge of inflation. The core version of index, which strips out volatile food and energy prices, came in lower than economists forecasted at 3% on an annual basis.
“There are many different measures of inflation, but it’s running at around a 3% rate,” Kashkari said. “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 said other economic data released Wednesday on consumer spending and gross domestic product showed the economy is “resilient.”
During a roundtable a few years ago, Kashkari said he heard from a labor union leader that inflation was “worse” than a recession for their members. He said that conversation has influenced how he views the trade-offs between stability in prices and employment.
The Fed this month issued its first interest rate hike in three years in an attempt to bat down higher-than-preferred price growth. The central bank also signaled that another increase could be on the horizon.
He said on Wednesday that the labor market looked “pretty good” but not “great.” Management services firm ADP earlier in the day announced that private payrolls expanded more than economists predicted in September.
AI concerns
Kashkari said the economy’s strength in the face of shocks over recent years has led him to raise his estimate for the neutral funds rate to 3.25%. He said the neutral rate is likely elevated temporarily due to demand for investment capital amid the artificial intelligence boom.
If the AI buildout succeeds, Kashkari said it can drive productivity in the U.S. economy. But Kashkari said he has concerns that the amount of corporate investment will not have the intended result or that it will not happen as soon as hoped — both of which 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 said the AI industry may need to learn to be more “efficient” with money and resources. The former Treasury Department official said that could become a necessary lesson in an era with tighter monetary policy.
To be sure, Kashkari acknowledged that interest rate hikes from the Fed may not slow hyperscalers by “much.” But, the Goldman Sachs and Pimco alum said such changes to borrowing costs could have a helpful impact on other areas of the economy.