Neel Kashkari, Minneapolis Federal Reserve
Brendan McDermid | Reuters
If you’re debating whether the US is in a recession or not, you’re asking the wrong question, according to a top Federal Reserve official.
“Whether or not we’re technically in a recession doesn’t change my analysis,”[ads1]; Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, told CBS’ “Face the Nation” on Sunday. “I’m focused on the inflation data. I’m focused on the wage data. And so far, inflation continues to surprise us to the upside. Wages continue to grow.”
Last month, US inflation jumped to a four-decade high, rising 9.1% from a year ago. At the same time, the labor market remained strong: Nonfarm payrolls rose by 372,000 last month, along with a low national unemployment rate of 3.6%.
On Thursday, new data from the Ministry of Labor showed signs of a cooling in the labor market, with initial jobless claims reaching their highest level since mid-November. Still, Kashkari said, the job market is “very, very strong.”
“Typically, recessions show high job losses, high unemployment, that’s terrible for American families. And we’re not seeing anything like that,” he said.
The problem, Kashkari said, is that even in a strong labor market, inflation outpaces wage growth — giving many Americans a functional “pay cut” as the cost of living rises across the country. Solving that problem by reducing inflation is the Federal Reserve’s top goal right now, he added.
“Whether we’re technically in a recession or not doesn’t change the fact that the Federal Reserve has its own work to do, and we’re committed to doing it,” Kashkari said.
The Bureau of Economic Analysis reported Thursday that the nation’s gross domestic product shrank for the second straight quarter, often a warning sign that accompanies economic recessions. For Kashkari, that can actually be a good thing: An economic downturn can help reduce inflation to a point where it no longer outpaces wage growth.
“We definitely want to see some decline [of economic growth]”, he said. “We don’t want to see the economy overheat. We would love it if we could transition to a sustainable economy without tipping the economy into recession.”
Doing so poses a significant challenge for the Fed. Kashkari acknowledged that economic downturns tend to be very difficult to control, “especially if the central bank is inducing the downturn.”
Still, he said, the bank will do what is necessary to tame inflation.
“We’re going to do everything we can to avoid a recession, but we’re committed to bringing inflation down, and we’re going to do what we need to do,” Kashkari said. “We’re a long way from achieving an economy that’s back to 2% inflation. And that’s where we need to get to.”