Minneapolis Fed President Neel Kashkari has expressed doubts about the effectiveness of the Federal Reserve’s current monetary policy in curbing high inflation.
In a note released on the bank’s website on Tuesday, Kashkari suggested that the housing market’s surprising resilience in the face of tighter monetary measures raises questions about whether policymakers and the market are accurately assessing the current neutral rate.
Kashkari pointed to several factors contributing to the housing market’s strength, including a persistent housing supply shortage since the 2008 Financial Crisis, increased demand due to the rise of remote work during the COVID-19 pandemic, and recent influxes of immigrants adding pressure to the already strained supply.
Despite the Fed’s efforts to push 30-year mortgage rates higher by approximately 3.5 percentage points, Kashkari proposed that the neutral rate for the housing market may have increased since the pandemic’s onset.
"My colleagues and I are…very happy that the labor market has proven resilient, but, with inflation in the most recent quarter moving sideways, it raises questions about how restrictive policy really is." @neelkashkari in new essay. Read it in full here: https://t.co/hlTHO9ozY1
— Minneapolis Fed (@MinneapolisFed) May 7, 2024
Speaking at the Milken Institute Global Conference on Tuesday, Kashkari stated that the most likely scenario for the US economy involves interest rates staying elevated “for an extended period of time.”
READ NEXT: Battery Company Backed by Bill Gates Files For Bankruptcy Protection
However, he also mentioned that a rate cut would be necessary if inflation decreases or the labor market significantly weakens. “Or if we get convinced eventually that inflation is embedded or entrenched now at 3% and that we need to go higher, we would do that if we needed to,” Kashkari added.
