Fed Watch: Neel Kashkari

"Higher until highly confident" confirmed.

Discussion

FRB Minneapolis President Neel Kashkari piled on to Mary Daly’s incredibly hawkish interview last Thursday with an amazingly blunt, hawkish Q&A session this afternoon. Three things:

1. Starting around minute 39 he discusses the fact the Fed has not “slammed the brakes” on the housing market despite the most aggressive tightening campaign in US history. Why is this key? Because this indicates the Fed is focused squarely on housing prices. They have slammed the brakes on activity, but prices have barely budged.

2. Immediately following the comment about not slamming the brakes Kashkari says that what is “most surprising” to him is the fact construction jobs have not dipped. Far and away the most blunt statement I’ve heard from the Fed on the desire for job losses.

3. Lastly, around minute 55:40 he discusses rate cuts. He repeats the mantra that the Fed needs to be “confident” inflation is on its way back “all the way” to 2%. He then goes on to say that at some point the Fed will adjust nominal Fed Funds to maintain a stable real rate “sometime next year or the year after that.” Between Powell saying “a full year from now,” Daly defining “confident”, and now Kashkari floating the possibility of no rate cuts at all in 2024, this is very clear, orchestrated lead-up to Powell’s Jackson Hole speech.

“Higher until highly confident” confirmed.