Neel Kashkari, Federal Reserve of Minneapolis
Brendan McDermid | Reuters
If you’re debating whether or not the US is in a recession, you’re asking the wrong question, according to a top 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’ “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 positively. Wages continue to grow.”
Last month, US inflation jumped to a four-decade high, up 9.1% from a year ago. At the same time, the labor market remained strong, with nonfarm payrolls rising 372,000 last month, alongside a low national unemployment rate of 3.6%.
On Thursday, new data from the Labor Department showed signs of a cooling job as the first jobless claims hit their highest level since mid-November. Still, Kashkari said, the job market is “very, very strong”.
“Normally, recessions show high job losses, high unemployment, which 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 labor market, inflation is outpacing wage growth — giving many Americans a functional “wage cut” as the cost of living rises across the country. Solving that problem by reducing inflation is the Federal Reserve’s main goal right now, he added.
“Whether we’re technically in a recession or not, it 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 Thursday that the country’s gross domestic product has contracted for the second consecutive quarter, often a warning sign that has accompanied economic recessions. For Kashkari, that might actually be a good thing: an economic slowdown could help reduce inflation to the point where it no longer outpaced wage growth.
“We definitely want to see some delay [of economic growth]’, he said. “We don’t want the economy to overheat. We would love it if we could move to a sustainable economy without sending the economy into recession.”
This poses a major challenge for the Fed. Kashkari acknowledged that economic slowdowns are often very difficult to manage, “especially if it is the central bank that is causing the slowdown.”
Still, he said, the bank will do whatever it takes to tame inflation.
“We are going to do everything we can to avoid a recession, but we are determined to bring down inflation and we are going to do what we have to do,” Kashkari said. “We are still a long way from achieving an economy that is back to 2% inflation. And that’s where we need to go.”