Fed's Kashkari Says Policy Shouldn't Overreact to Inflation
Comment of the Day

November 15 2021

Commentary by Eoin Treacy

Fed's Kashkari Says Policy Shouldn't Overreact to Inflation

This article from Bloomberg may be of interest to subscribers. Here is a section:

Kashkari said the move was “appropriate” and stressed that moving too quickly to remove the Fed’s support could end up hurting the economy more than it helps on the inflation front.

“When we adjust monetary policy it acts with a lag,” he said. “So if we overreact to a short-term price increase, that can set the economy back over the long term.”

Kashkari, who doesn’t vote this year on the policy making Federal Open Market Committee, said he expects heightened demand connected to previous fiscal stimulus and supply constraints caused by the pandemic to slowly ease. 

Asked about President Joe Biden’s pending decision whether to reappoint Fed Chair Jerome Powell to another four-year term, or perhaps choose Fed Governor Lael Brainard to succeed him, Kashkari said both are capable and would be likely to pursue similar monetary policies.

“Both of them have been instrumental in the new framework that we’ve adopted in terms of not shortcutting the recovery, and I’m confident that either of them as chair would continue to see that through,” he said.

Eoin Treacy's view

Kashkari is one of the biggest doves at the Fed but he is not short of company considering the trajectory of policy. Regardless of who is in charge, the set of challenges that need to be addressed will not change. The economic recovery is uneven with labour force participation declining while the number of job opens is climbing. That’s not going to be fixed by monetary policy.

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