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"We
know we have to bring inflation back down to 2%. If the job
market softened a little bit, that's not much of a tradeoff,"
Kashkari said during an event at the University of Minnesota in
Minneapolis.
"The challenge is going to be if the supply chain issues don't
help us, if they don't unwind a little bit on their own ... and
we have to use aggressive monetary policy to bring inflation
back down then that could lead to a higher unemployment rate,
that could lead to a recession," he said.
The U.S. central bank raised interest rates by half a percentage
point earlier this week, the biggest hike in 22 years, and Fed
Chair Jerome Powell signaled policymakers stand ready to approve
half-percentage-point rate hikes at upcoming policy meetings in
June and July as the Fed steps up its fight to lower high
inflation.
Earlier on Friday, in a post on Medium, Kashkari warned that the
war in Ukraine and COVID lockdowns in China will likely delay
any normalization of supply chains.
Kashkari also repeated he sees the neutral rate, which is the
level of borrowing costs that neither stimulates nor curbs
economic growth, to be at 2% but noted that there is a wide
range of estimates - roughly between 2% and 3% - among his
fellow policymakers.
"The general consensus is we have to at least get up to neutral
and probably moderately above neutral over the course of this
year into early next year, but again there are a range of
estimates on what neutral looks like," Kashkari said.
On how much more the Fed will have to go above neutral, the
Minneapolis Fed chief said, "many of us are just waiting to see
how the economy evolves."
(Reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama and
Paul Simao)
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