Minneapolis Federal Reserve President Neel Kashkari said Wednesday that inflation remains too high, despite August’s core personal consumption expenditures price index rising less than economists had forecast. The measure stood at 3.0% year over year, but Kashkari said inflation had been around that level for more than five years. He argued the latest reading did not change the broader picture, even as he described the labor market as “pretty good” but not “great.”
Why one cooler reading was not enough
The August PCE price index was released Wednesday morning. PCE is the Federal Reserve’s preferred inflation gauge; its core version excludes food and energy prices, which can fluctuate sharply. The core measure’s 3.0% annual rate came in below economists’ expectations, but Kashkari focused on how long price growth had remained elevated rather than the latest surprise.
In an interview with CNBC’s Steve Liesman during a Council on Foreign Relations event in New York, Kashkari said the data did not substantially change his assessment. His concern was that inflation had stayed near 3% for more than five years, still above the Fed’s target. A softer result can be welcome without demonstrating that price pressures are easing durably.
Price stability and employment
Kashkari said Wednesday’s figures on consumer spending and gross domestic product suggested the economy remained resilient. He described employment conditions as “pretty good,” while stopping short of calling the labor market “great.” Those judgments put the inflation debate alongside the Fed’s other central concern: sustaining employment while restoring price stability.
He recalled a conversation at a roundtable a few years earlier, when a labor union leader told him inflation was “worse” than a recession for the people they represented. Kashkari said the exchange had influenced how he weighs the trade-offs between stable prices and employment. The episode helps explain why he emphasized persistent inflation even with the August core reading below forecasts.
Rates, resilience and the neutral benchmark
The source material says the Fed raised interest rates this month for the first time in three years, seeking to curb inflation above its preferred level, and signalled another increase could be possible. Kashkari also said economic resilience through shocks in recent years had led him to raise his estimate of the neutral federal funds rate to 3.25%—the level he views as neither stimulating nor restraining economic activity.
He suggested the neutral rate may be temporarily higher because investment demand is strong amid the artificial-intelligence boom. That distinction matters: a higher neutral-rate estimate would imply that interest rates might need to remain elevated to restrain inflation, even if some of the demand reflects a temporary investment cycle. Kashkari’s comments do not set policy by themselves, but they signal why one below-forecast inflation reading may not settle the debate over rates.
AI investment brings promise and risk
Kashkari said a successful AI buildout could lift productivity across the U.S. economy. But he also warned that corporate investment might fail to deliver the gains businesses anticipate, or take longer to do so. If large spending commitments produce little productivity improvement, the result could weigh on economic performance rather than support it.
He said the AI industry may have to become more efficient in its use of money and resources as monetary policy tightens. Rate increases may not slow major technology companies much, in his view, but higher borrowing costs could still affect other parts of the economy. The tension is central to the outlook: investment can support future productivity, yet its uncertain payoff complicates judgments about demand and interest rates now.
Takeaway: For Kashkari, August’s 3.0% core PCE reading was cooler than expected, but not enough to outweigh years of persistent inflation.
Sources
- cnbc.com — “Fed's Kashkari says inflation is 'still too high' even after softer-than-expected PCE data”
- actionforex.com — “Fed’s Kashkari Says Softer PCE Does Not Change Inflation Story – ActionForex”
- walletinvestor.com — “Softer US PCE reading fails to dent the dollar as Kashkari says inflation is still too high – WalletInvestor.com”
- MarketScreener — “Fed's Kashkari Says Inflation Still Too High Despite Cooler PCE Data”
- businesstimes.com.sg — “US inflation rises below expectations in August, gives the Fed breathing space – The Business Times”
