Fed’s Kashkari says inflation fight takes priority as labor market is 'in decent shape'

Minneapolis Federal Reserve President Neel Kashkari said Thursday that bringing down inflation in the U.S. remains his top priority, warning that consumer prices are still "much too high."

Speaking to CNBC's Kaori Enjoji at the Bank of Japan-IMES Conference, Kashkari said that the U.S. central bank would continue taking a "balanced approach" to its dual mandate of price stability and full employment.

Still, he noted that inflation has remained above the Federal Reserve's 2% target for more than five years, while the labor market is in "decent shape" right now.

"I am focusing heavily on inflation. I'm not ignoring at all the labor market. We need to pay attention to both sides, but the labor market is in decent shape right now, while inflation is simply much too high," he said.

Kashkari added that the longer inflation remains elevated, the greater the risk that inflation expectations become unanchored and move higher.

"If that were to happen, then we'd have to respond even more aggressively, so we're much better off doing what we need to do to keep inflation expectations anchored."

U.S. headline inflation most recently stood at 3.8% in April. Excluding food and energy, the core CPI increased 0.4% and 2.8%, respectively.

Kashkari said that global inflationary pressures have been fuelled by the Covid-19 pandemic, tariffs, the war in Ukraine, and now, the conflict in Iran.

Asked about the main drivers of the recent inflation surge, Kashkari said there was "some tailwind from what was left over before," but attributed the current surge to energy and fertilizer prices.

"Those inputs do affect other categories as well, and so one of the things I'm going to be looking for is, when do we see energy prices affecting the broader economy and inflation in the broader economy."

Kashkari was also asked about the impact of artificial intelligence on the Fed's policy trajectory, and said that if AI really does lead to sustained higher productivity, higher rates could be sustained as the economy is so productive.

However, he also cautioned that the impact is currently hard to judge and, as such, would need to be observed to see how AI translates into sustained higher productivity.

"I talk to businesses all the time, big businesses, especially in America. All tell me that they're using it, they're finding useful ways of putting it to work to become more productive, or to give them capabilities they didn't previously have," he said.

"I'm bullish on the long-term prospects of AI, but what are the short-term implications for monetary policy, or even the long-term implications? I think it's still too soon to know."

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