Jan 5 (Reuters) – Minneapolis Federal Reserve President Neel Kashkari on Monday said inflation is slowly trending down, but there is a risk the jobless rate could “pop” higher.
“I think the inflation risk is one of persistence, that these tariff effects take multiple years to work their way through the system, whereas I do think there’s a risk that the unemployment rate could pop from here,” Kashkari said in an interview on CNBC.
Economists polled by Reuters estimate the U.S. unemployment rate eased down in December to 4.5%, from 4.6% in November. The Labor Department is due to publish the monthly jobs report on Friday.
Kashkari said Monday he believes the rate is around 4.6%, which shows the labor market is cooling. He is skeptical of data that shows inflation is also cooling, noting problems with data collection connected to the record-long government shutdown in the fall. The government reported last month that U.S. consumer prices rose 2.7% in November from a year earlier, less than projected.
The Fed targets 2% by the personal consumption expenditures price index.
The Fed last year cut its policy rate by three-quarters of a percentage point, and in December signaled it will likely pause in the new year to assess if further cuts are needed. Kashkari is a voter this year on the Fed’s interest-rate-setting committee.
“I think inflation is still too high. And the big question in my mind is how tight is monetary policy….My guess is we’re pretty close to neutral right now,” Kashkari said on Monday. “We just need to get more data to see which is the bigger force — is it inflation or is it the labor market — and then we can move from a neutral stance to whatever direction is necessary.”
OIL PRICE RISK
President Donald Trump has railed against the Fed for cutting rates too slowly and by too little, and has taken a number of steps to try to reshape it more to his liking. Last year he appointed an advocate of aggressive rate cuts to the Fed Board, and he is making an unprecedented effort to fire another Fed governor in a case that is now before the Supreme Court.
Trump is also expected this month to designate another rate-cut advocate to succeed Fed Chair Jerome Powell when his leadership term ends in May.
Asked if Powell will step down then or take the unusual step of staying on as Fed governor, Kashkari said he had “no idea,” but would “love to see him remain a colleague for as long as he likes.” Powell’s remaining as governor would deprive Trump of an open seat at the Fed Board.
Kashkari on Monday was also asked about the implications of the Trump administration’s capture of Venezuela’s leader over the weekend.
The risk is “mostly through oil prices,” Kashkari said in an interview on CNBC. “When Russia invaded Ukraine, it sent a commodity shockwave all around the world. It didn’t happen with Hamas attacking Israel. It has not happened now with the U.S. and Venezuela. But that’s the mechanism that … would directly affect the U.S.”
“I don’t see it so far,” he added.
In the biggest intervention in Latin America since the 1989 invasion of Panama, U.S. Special Forces over the weekend captured Venezuela’s long-time leader, Nicolas Maduro, and brought him to New York to face drug trafficking charges.
Commodity and financial asset markets so far have shown only a modest response to the surprise development. U.S. light sweet crude oil prices on Monday were about 1% higher but were not far above five-year lows touched in December.
(Reporting By Dan Burns; Editing by Toby Chopra and Chizu Nomiyama )
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