Source: Finance Federation Author: Zhao Hao
① Kashkari said during the discussion that he was very surprised by the resilience the US economy has shown in the high interest rate environment so far; ② “We may need to wait a little longer until we figure out the direction of potential inflation before drawing a conclusion.”
On Wednesday (May 15) local time, Minneapolis Federal Reserve Chairman Kashkari said that he expects the Fed's policymakers to keep interest rates high “for a longer period” until they have confidence in the potential path of inflation.
On the same day, Kashkari participated in the Williston Basin Oil Conference held in Bismarck, the capital of North Dakota. During the discussion, Kashkari said that he was very surprised that the US economy has shown resilience in a high interest rate environment so far.
“In my opinion, the biggest uncertainty is how much downward pressure monetary policy is putting on the economy,” Kashkari said. “This is an unknown, we are uncertain — it tells me that we may have to wait a little longer until we figure out the direction of potential inflation before drawing a conclusion.”
Kashkari pointed out that before the COVID-19 outbreak, the current mortgage interest rate level, as well as the 5.25% to 5.50% federal funds rate, should have been more than enough to slow the US economy. He said that the current level of monetary tightening makes people feel like they have “stepped on the brakes.”
But it backfired. Kashkari said, “Looking at it now, the economy is more resilient than I expected. This may actually mean that we only hit the brakes on one foot, not both.” He said that supply chains in most economic sectors have been normalized, and recent data shows that commodity prices are showing signs of deinflation, or even deflation.
However, at the same time, there is still some potential demand in the economy. This is also the focus of the Federal Reserve's current focus. Many officials, including Kashkari, said that they are paying attention to inflation in the service sector. Among these, Kashkari is paying particular attention to housing inflation.
housing inflation
In recent years, housing costs have played an important role in inflation. It weighs as much as one-third in the consumer price index (CPI) and accounts for about one-sixth in the personal consumption expenditure price index (PCE), which is the inflation index favored by the Federal Reserve.
He said, “Housing is a major driver of inflation. Considering the sharp rise in mortgage interest rates, the real estate market is much more flexible than I expected.” According to a survey report released by the New York Federal Reserve on Monday, American consumers expect housing prices to rise by 5.1% after a year, higher than the 2.6% forecast a year ago.
Nick Timiraos, a famous journalist known as the “New Federal Reserve News Agency,” wrote that in order for the US inflation rate to return to 2%, the inflation rate for non-housing services must be reduced from the current 3.5% to less than 3%, and the housing inflation rate must be reduced from 5.8% to around 3.5%, which is not too difficult.
However, Kashkari said that even if the government's finances are relatively relaxed, he still believes the Federal Reserve can achieve the 2% inflation target. From the perspective of the central bank, if the government issues a large amount of debt, the central bank will need to raise interest rates to a higher level.
“We were able to meet our 2% inflation target, and we've really been doing that all the time. If the federal government takes a different (more austerity) fiscal path, the central bank's interest rate could be cut even lower. But in the short term, the Federal Reserve may need a higher interest rate environment to meet the inflation target.”
Cryptocurrency = Doudou
Speaking about cryptocurrencies, Kashkari said he still questions the utility of Bitcoin, etc., “Other than as a speculative tool, Bitcoin has hardly shown any practical use in the real world. So I compared it to 'Beanie Babies' (Beanie Babies).”
Doudou is a type of plush toy that was popular in the US in the 90s. At one point, this little doll worth around $5 became a hot target, and the price rose to several thousand dollars because people thought the price of these dolls would continue to rise. Later, these little bear toys, which once cost several thousand dollars, were sold for $10 for 3.
Kashkari said, “If you want to collect Beanie, then collect them. I'm just reminding those who think this is a really useful investment tool.”
edit/lambor