Neel Kashkari, Minneapolis Fed
Brendan McDermid Reuters
If you’re debating 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’m focused on the inflation data. I’m focused on the wage data. And so far, inflation continues to surprise us to the upside. Wages continue to grow.”
Last month, US inflation jumped to a four-decade record, increasing by 9.1% compared to the previous year. At the same time, the labor market remained strong: nonfarm payrolls increased by 372,000 last monthalong with a low national unemployment rate of 3.6%.
On Thursday, new data from the Labor Department showed signs of a cooling in the job 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 huge job losses, high unemployment, which are terrible for American families. And we’re not seeing any of that,” she 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 country. Solving that problem by reducing inflation is the Fed’s main goal right now, she added.
“Whether or not we’re technically in a recession doesn’t change the fact that the Fed 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 reduced for the second consecutive quarter, often a warning sign that accompanies economic downturns. For Kashkari, that may actually be a good thing: An economic slowdown could help reduce inflation to the point where it no longer outpaces wage growth.
“We definitely want to see some slowdown [of economic growth]” he said. “We don’t want to see the economy overheat. We would love to be able to transition to a sustainable economy without driving the economy into recession.”
Doing so poses a significant challenge for the Fed. Kashkari acknowledged that economic slowdowns tend to be very difficult to control, “especially if the slowdown is being induced by the central bank.”
Still, he said, the bank will do whatever it takes to control inflation.
“We will do everything we can to avoid a recession, but we are committed to reducing inflation and we will do whatever it takes,” Kashkari said. “We’re a long way from getting an economy back to 2% inflation. And that’s where we need to get to.”