Neel Kashkari President Of The Minneapolis Fed On Tariffs And More

TITLE: Neel Kashkari, President of the Minneapolis Fed, on Tariffs and More CHANNEL: FRONTLINE PBS | Official DATE: 2026-06-04 ---TRANSCRIPT--- The president came in with an ambitious economic agenda. There were tariffs, immigration reform, um big tax cuts. How did that affect your thinking inside the Fed about how you are going to steward the economy?

Well, we take whatever the president and Congress, whatever policies they adopt and we put them into our analysis of the US economy as a whole, and then we try to figure out, does that mean that the economy is going to overheat or is it going to slow down too much? We are neutral as to what those policy choices are. They’re simply inputs into how we analyze the economy. And they’ve made this last year very complicated in analyzing the economy because just the ones you said, big tariff changes, big immigration changes, big tax and regulatory policy changes. That’s a lot of change happening at the same time. And that makes it complicated for us to understand what’s happening under the surface of the US economy. So for instance, the decision to hold rates steady, right, and not to continue to cut rates. How much of that is figuring in kind of understanding the effect of what President Trump and and and Congress are doing? Well, a lot of that is it’s informed of that because we know that monetary policy operates not instantly. It operates over months or quarters or even a year or two. So we have to look ahead and say where do we think the economy is going to be six months or a year from now and try to adjust monetary policy so we get to our dual mandate our stable prices and maximum employment over that horizon. So we do have to look forward and policy choices of the administration and congress really do affect that. Now, I mean, from the administration’s perspective, the Fed has sort of been seems to, you know, the their their critique in some ways seems to be that the Fed is gunshy, is afraid to somehow lower rates, to run the economy hotter. And and there are those that would say that in some ways you’re worried that considering the fact that inflation reached a 40-year high under your watch, a significant problem, um that you guys might be gunshy to lower rates because of the errors that you made. What would you say to folks that say that the Fed has been gunshy and and reluctant to lower rates in part to maintain credibility after having made such a mistake about letting inflation get to 40-year highs? Well, inflation got to 40-year highs for a bunch of reasons, including, for example, Russia invading Ukraine, which sent oil and commodity prices up all around the world, and that affected us here at home. But we also had a role to play. Inflation is still too high. Like today we’re we’re meeting inflation is still running at around a 3% rate. So it’s still well above our target. When it’s been above our target for 5 years, that should make any central banker cautious about lowering rates further until we’re confident it’s going to go all the way back down. Liberation day when these tariffs were announced. How does that look from the view of the Federal Reserve? Well, we know that tariffs raise prices because we’re buying goods from abroad. And if those prices are going to go up, some of that is going to be borne by American consumers. We know that. Question is, how high is that inflation going to get? And then how much does that slow down economic growth? If everything that you want to buy or a lot of what you want to buy goes up in price, you’re going to buy less of it. So, it’s also going to create a drag on the economy. So, it forces us to go back and analyze, okay, what do we think this is going to do to inflation? How much is it going to push it up? How long is that inflationary boost going to last? And how much is it going to tamp down on economic activity? So, we would call that a stagflationary shock. Meaning, if it pushes up inflation, all else being equal, we would want to raise rates. But if it pushes down economic growth, all else being equal, we’d want to lower rates. So, how do we balance those two competing forces? And so, it forced us to go back to our models and try to analyze where is the US economy going? It’s a big we would call that a big shock to the US economy. And so I mean at the time Chair Powell was saying that this he was worried that this would raise inflation. It was sort of a rationale to keep rates where they were. Um then we start to see the president start to escalate. What what from your vantage point kind of happened next? We we you know when we heard for instance we heard the president attack the chairman um saying we have a Federal Reserve chairman that’s playing politics. This was after the tariffs were announced and he floated the idea of firing the Fed chair. Again, what’s the reaction here inside the Fed? Inside the Fed, it’s focusing on our analysis, you know, are are we are we missing something? When leaders outside say that we’re getting something wrong, it forces me to step back and say, okay, am I missing something? For example, do I believe that tariffs raise prices of goods from abroad? I examine that. Yes, I still believe that. Even if somebody says I’ve got it wrong. Do I believe that higher prices will slow down the US economy? Yes, I believe that. Uh so that is you know I think it forces us to go back and reexamine our assumptions. But then to me it said okay I think we’re making the right call based on the shocks and the data that we’re getting. So if you put tariffs again tariffs big beautiful bill the tax cuts the immigration policy in the in all in the same bucket. Um, do you know do when we’re talking about the conflict in some ways between the administration and the Federal Reserve, do you see all of that tied in together? I mean, I don’t I don’t see them all. I mean, obviously the administration has expressed concern about our monetary policy, but it’s their job. They were elected by the American people. The president was elected. It’s their job in the Congress to make these kind of policy choices on behalf of the American people. It’s not our job. Our job is to take their decisions as an input and then understand what do we do need to do with monetary policy to achieve the goals of stable prices and maximum employment. Now I know you’re saying that you know you’re you’re you’re here you’re trying to you know basically ignore the noise the political noise on the outside but I’d have to imagine that it was concerning when you start to hear the president of the United States saying you know that he’s contemplating firing Chair Powell. of course and and I know that in America in the 110 or so year history of the Federal Reserve that has never been done. Uh and lawyers were saying, “Hey, it’s legally not possible. But ultimately would end up going to the courts and be tested.” And we obviously have seen that. Uh and I’m uh I feel comforted by the fact that the Supreme Court so far has indicated that they believe that Federal Reserve independence is important and that the laws protect the Fed, protect our ability to make these kind of dispassionate decisions. Um, you know, I’m curious one to to those who don’t really know why Fed independence is important, how would you describe it? You know, you you have some extraordinarily powerful tools at the Federal Reserve, probably the most powerful tools in the global economy. Why is it so important for the Fed to be independent? One of the things we’ve learned over the last five years is that the American people hate inflation. Inflation is a tax on everybody that you cannot escape. And so we experienced that because of coming out of COVID, a confluence event, Russia invading Ukraine. If Fed independence and central bank independence is lost, how will the American people feel it? They will feel it in higher inflation year in year out. One of the remarkable achievements of the Fed from around 1980 until this COVID pandemic period was we had declining and low and stable inflation so that the American people didn’t have to worry about it, didn’t have to think about it. That’s our jobs to put inflation, keep it low enough so the American people can focus on things that really matter to them, their families, their careers, etc. Once central bank independence is lost, it shows up in higher inflation that affects everybody. And that’s the that’s what’s dangerous about it. What what do you say to those who would say that independence in some way shields the Federal Reserve from accountability? Yeah, I fundamentally disagree because Congress created the Federal Reserve and we are ultimately accountable to Congress. the chairman of the Fed, Jerome Powell, and the chairman before him go and testify regularly before the Congress, the Senate and the House on what decisions have been we’ve been making and why and hearing their feedback. Uh they also send letters in requesting information that we then comply with and provide to them. There are many layers of accountability, but ultimately we were created by Congress. We are accountable to Congress. We take that very seriously. Every time I go to Washington, I meet with elected leaders from my district, from the ninth Federal Reserve district that I am charged to represent. I meet with Republicans and Democrats alike on an e equal calendar to share with them what we’re looking at, what decisions we’re making, and why, and to get their feedback. I think I I understand what you’re saying but there is some sense that in the past few years it it you know for instance inflation has been inflation has been above your targets for 5 years now right so we’ve heard it from various people if if if there were a CEO that were missing his or her targets for 5 years running someone would get fired right there’d be some real accountability for that mistake um that’s a problem So again, where where is the accountability for the fact? I mean, I understand that you’re talking to Congress. I understand you’re accountable to Congress in some ways, but where is the demonstration of accountability for having missed your targets for 5 years? Well, one of the demonstrations of accountability is the fact that the governors in Washington are appointed by the president of United States subject to Senate confirmation. They are appointed on staggered terms. This is Congress’s design to create a slowmoving accountability, meaning over time the board of governors will change. President Trump has already made a number of appointments. Jerome Powell’s term as chair of the board uh comes to a conclusion in midMay when his his four-year term concludes. That’s another moment of accountability when Congress will get to express their view the Senate on the president’s new appointment. So to someone who would say that some heads should have rolled, right? That someone should have been fired for such a a massive m kind of missing the inflation, calling it transitory, then five years of elevative inflation. and that’s your main job at the Fed. So, what do you say to someone who would say that that heads should have rolled for this? Well, I understand that perspective. If you look around the world, every advanced economy in the world basically suffered the same inflation. And it’s not because we made different choices than they made. It’s because the global events that hit all of us, whether it’s COVID, the supply chain disruptions were global, Russia invading Ukraine sent a commodity shock wave all around the world. that happened to all virtually all advanced economies in very similar methods. And so I do own I mean I I do believe we own some role in this. But I think people give us both too much credit and too much blame because a lot of times forces outside of all of our controls lead to these kind of outcomes. You and I have sat here and had this conversation before and I had asked you whether the Fed had run it in retrospect had run the economy too hot for too long and you basically said with the benefit of hindsight, yes. Yeah, that’s right. Right. I mean, I I knowing what I know now, I absolutely wish we would have started raising interest rates a little bit early. Uh I would I would then say though, I don’t think it would have changed the profile of inflation very much. If I mean, honestly, it would have inoculated us from some of the criticism because we could point to hey, we did we did raise rates earlier. But I also know that Russia invading Ukraine was a commodity shock that monetary policy could not do anything about. There is an affordability crisis in America. You’ve got millions of Americans who are suffering from um higher well obviously higher prices of things um but also higher mortgage rates, higher car loan rates um and why can’t the Fed lower rates in order to help people? Why can’t the Fed address the affordability crisis? So just use the example in your question which is a great example. Let’s imagine that we said we want to make things more affordable by lowering rates. So, we lower mortgage rates would come down. Car loan rates would come down. Credit card borrowing costs would come down. Make it easier for people to go buy things. Well, guess what happens to home prices? Home prices go up. Auto prices might go up. Inflation continues to go up. And so, yes, your borrowing costs go down, but they don’t buy anymore. You can’t buy anymore than you previously could because the price of things in the society goes up. And that’s why monetary policy by itself cannot solve the affordability issue. What we can do is get inflation back down to our 2% target. So if you look at why is housing so unaffordable, it’s so unaffordable because for a decade after the financial crisis, we didn’t build enough homes as societies. So we have a shortage of homes. If we cut interest rates, it’ll make mortgages cheaper and home prices higher and affordability doesn’t get any better. So basically though, you’re saying that the I mean again the the president and and some in the administration have admonished the Fed to lower rates in order to help give relief to the American people, right? Relief to borrowers. Um what it it seems logical, right? And like why why wouldn’t the Fed do that? Why what’s the danger of lowering rates? If we lower rates when the economic fundamentals don’t justify it, it’s going to push up inflation and then people are already suffering from their affordability is hurt by high inflation. And if inflation were to go higher from here, things would become even less affordable. And you know, we saw after the November elections last year that affordability sort of became the the main political issue in this country. Obviously, the president and the Republican party suffered some massive losses at that point in time. I I’m curious if you think how you think the economic situation, the the the vulnerabilities politically for the president have played into his attacks on the Federal Reserve. I can’t analyze that. I don’t I’m not a political expert enough to be able to diagnose that. Uh I I would say on both sides of the aisle, generally speaking, when somebody’s in power, generally speaking, they want lower interest rates to boost the economy under their watch. That I think is true on both sides of the aisle. Uh I think that this president is more vocal than many, but I think that the desire for lower rates is not unique to him. But I mean, you’re not just saying this is about communication. There’s been action behind Sure. As we’ve talked about, he’s obviously taken steps to try to remove Governor Cook. uh and now now the justice department served a subpoena on Chair Powell and on the board of governors. So those are unique actions that are unique in American history. One of your colleagues at the Fed, Steven Myron, has said that the Fed is being overly restrictive. He thinks that the policy has been pretty miscalibrated and that the Fed is chasing quote phantom inflation and basically you’re slowing down the economy and endangering employment by doing so. What’s your response to that? Right now in the end of March 2026, inflation is running at about a 3% level, which is still a 50% miss relative to our 2% target. For a central banker, that’s still a big miss. Now, meanwhile, the unemployment rate is running at 4.4% and it’s showing some weakening over the last year. So, we’re we’re in a pickle right now because either we can if we bring down inflation, we would in theory push up the unemployment rate or if we let inflation get higher, we could help the unemployment rate. We have to we have to pick. Our dual mandate is what we call intention. There’s no easy way to achieve both of them. And so, I understand Governor Myerin in that quote is saying we should focus more on the labor market, but I would respectfully say we are still missing on inflation. The American people, 300 plus million Americans are experiencing inflation today that is significantly higher than they should be. And that’s a very real problem that we cannot ignore. So basically though, you are in I mean you describe it as a pickle, but you’re basically having to choose between two issues. Two competing two two competing goals that are right now intention. They’re not always intention, but they’re intention right now. And so that makes it very tricky for a central bank. And what we’ve said is when they’re intention, we will try to look at both of them so that not one side gets more out of balance than the other. So how deep are the disagreements on this on the board, right, of those who think that the economy needs more help and the labor market needs more help and those like yourself who think that inflation is still too high. Well, I think the bulk, if you look at the votes of the FOMC over the last six months or so, the substantial predominant group of policy makers have voted uh to take a more cautious view on inflation. And there’s been a very small minority that have dissented in favor of focusing on the labor market. And so I think the bulk of the committee is still more focused on inflation, the inflation myth, than on the labor market. Some folks who we’ve spoken who’ve advised the president at various points on economic policy think that the Federal Reserve is sort of anti-growth in some ways that it’s so scared of inflation that here we have a president who’s trying to unleash um you know significant growth in this country. But here’s the Fed that refuses to lower rates in order to help the president unleash that growth that you’re acting as a because you’re so afraid of inflation going up. um your models say it will, but maybe those models are wrong. What do you say to those who say that you’re kind of uh overly obsessed with inflation and anti-growth? Well, I think the idea that this is not about worrying that inflation’s going to go up. This is about that in inflation today is still too high. Ask most Americans, inflation today is still too high and we need to finish the job of bringing it down. If there is a growth miracle in the economy driven by deregulation and tax cuts, fantastic. Then we can grow and we can bring inflation down at the same time. But right now, for the last year, inflation has mostly moved sideways. And that’s very serious for the American people. I mean, one of the things that also just people don’t necessarily think about on a regular basis is inflation is a rate of acceleration, right? It’s not like prices. Can you just help to explain to people why it’s so concerning that inflation is still well above your target? Even if we get inflation back to our 2% target, that still means prices are going up 2% year after year after year. So we are not aiming for trying to get no growth in prices because that actually is that would be too hard to achieve for the economy as a whole. A little bit of growth in prices is okay. That’s what we call 2% inflation or our stable price target of slow inflation growth. slow price growth. But you’re right, today inflation is running at about a 3% rate. So it’s a 50% miss relative to where we want it to be. And the American people are feeling it.