Neel Kashkari, Minneapolis Federal Reserve
Brendan McDermid | Reuters
If you’re wondering whether or not the United States is in a recession, you’re asking the wrong question, according to a senior Federal Reserve official.
“Whether we’re technically in a recession or not doesn’t change my analysis,” Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, told CBS’s “Face the Nation” on Sunday. “I focus on inflation data. I focus on wage data. And so far, inflation continues to surprise us on the upside. Wages continue to grow.”
Last month, inflation in the United States hit a four-decade high, rising 9.1% from a year ago. At the same time, the labor market has remained strong: nonfarm payrolls rose by 372,000 last month, alongside a low national unemployment rate of 3.6%.
New data from the Labor Department on Thursday showed signs of a slowdown in the labor market, with initial jobless claims hitting their highest level since mid-November. Still, Kashkari said, the job market is “very, very strong.”
“Typically, recessions show high job losses, high unemployment, these are terrible for American families. And we don’t see anything like that,” he said.
The problem, Kashkari said, is that even in a strong job market, inflation is outpacing wage growth, giving many Americans a functional “pay cut” as the cost of living rises across the board. the country. Solving this problem by reducing inflation is the Federal Reserve’s main objective at the moment, he added.
“Whether we’re technically in a recession or not doesn’t change the fact that the Federal Reserve has its own job to do, and we’re committed to doing it,” Kashkari said.
The Bureau of Economic Analysis reported on Thursday that the country’s gross domestic product fell for the second consecutive quarter, often a harbinger of economic recessions. For Kashkari, this may actually be a good thing: an economic downturn could help reduce inflation to the point where it no longer outpaces wage growth.
“We really want to see a slowdown [of economic growth]”, he said. “We don’t want to see the economy overheating. We would love to be able to move to a sustainable economy without tipping the economy into recession.”
This presents a significant challenge for the Fed. Kashkari acknowledged that economic downturns tend to be very difficult to control, “especially if it’s the central bank that induces the downturn.”
Still, he said, the bank will do whatever is necessary to bring inflation under control.
“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 have to do,” Kashkari said. “We are far from having an economy that returns to 2% inflation. And that’s where we have to go.