The president of the Federal Reserve Bank of Minneapolis says the US is currently facing a heightened recession risk.
In a new interview with CNBC, Minneapolis Fed leader Neel Kashkari says he’s been having concerning discussions with small and big businesses across his region.
“The most common comment that I get is that they are uncertain about the outlook, so they’re nervous about making new investment decisions. Even businesses have said to me, if they knew where the tariff would ultimately settle, then they could adjust their supply chains around that new environment.Â
That all else being equal, they may want to lower tariffs, but wherever they settle, they could adjust to that. But right now, there’s still so much uncertainty as the negotiations are continuing. A lot of businesses are on hold, and if businesses and consumers are on hold, that introduces downside risk for the economy, potentially even recession risk.”
Last week, Kashkari’s fellow Fed President Austan Goolsbee, who leads the Chicago bank, warned that President Donald Trump’s policy choices could lead to an unfavorable economic environment known as stagflation, which is dominated by stagnant economic growth, high inflation and high unemployment.
If the Fed is eventually faced with twin threats of persistent inflation and a weakening economy, Kashkari argues the central bank should prioritize the fight against inflation.
“For me, because inflation in the US and around most countries in the world, most advanced economies… has been elevated for four years, I’m very nervous that eventually inflation expectations might lose their anchor to that 2% target that we have. If inflation had been running at 2% or below for the last four years, I would be more comfortable, quote unquote, looking through this one-time tariff-induced inflation.
But because inflation has been running hot for four years, that makes me nervous, and that makes me want to err towards protecting and defending the inflation anchor of 2%.”
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