Transcript

Neil: Are you surprised that mortgage rates would be following that the 30 year fixed rate now up to seven point 10% Heights, it's been more than four months what to make of that and these growing expectations that rate cuts that the markets were planning on might be getting pushed back further and further and further gentlemen, who would know is Neel Kashkari. He's the Minneapolis Federal Reserve Bank president. Neil, very good to have you.

Neel Kashkari: Good to see you, Neil.

Neil: Um, let me ask you first about what's happening on the mortgage front. You know, I know that that seems like a jarring number to some. I don't know if I ever told you what my wife and I paid for our first mortgage, but I've told the nation I think about 2000 times, but it was a lot higher. And I know it's what you get used to and people now we're getting used to much lower rates and it's putting a stall some say a stop to the housing industry. Do you agree with that?

Neel Kashkari: I don't agree with that. One of the surprises for me, is how resilient housing the housing market broadly, has been in the last couple of years while we've raised interest rates, as you noted, you know, mortgage rates are now above 7%. I would have thought that that would have slammed the brakes on the housing market. What we've seen is the single family home market has slowed down. The multifamily market or apartment building market is kept up much stronger. And if you look at construction, employment, construction, employment has continued to climb throughout this period when we've been raising interest rates. So actually, it's a little bit of a head scratcher for me. How is it that housing has been as resilient as it has been? And I think part of the answer is, for the 10 years or so after the financial crisis. We simply didn't build enough units, homes or apartment buildings to keep up with our population growth. And that demand is still built up there that we're trying to work its way through Yeah, that there's limited supply and the demand for that. Having said that, there's not more supply likely to come on the market right now. If you're a home seller and you're looking at this environment, you're going to hold off right and that limits choices for potential buyers.

Neil: So how do you see that Mexican standoff going?

Neel Kashkari: Well, you know, every person we hear this a lot that well, people aren't selling their homes, because they're they've locked in a low mortgage rate and they don't want to buy a new home and have to go get a more expensive mortgage and that that makes a lot of sense. But that also means that's one fewer buyer in the market. So how that washes out is a little bit unclear to me. Ultimately, we know what we need to do, we need to get inflation back down to 2%. Once we do that, we get closer to it. We'd be in a position to start dialing back some of our interest rate increases, and then you would expect that to flow through to cheaper mortgages for American families.

Neil: Let me ask you a little bit about this given some of the inflation numbers we had seen and the robust economic numbers we've seen in other areas. market rates have been backing up over which the Fed has no direct control, it can Jawbone about them one way or the other, but no direct control. And I am wondering now whether this is pushed off those expected rate cuts to either late next year or maybe not at all this year?

Neel Kashkari: Well, you know, the data is going to guide us we've been surprised in a concerning way about the first three months inflation data this year, the second half of last year, we saw a lot of progress as inflation fell back towards our target. That gave us a lot of optimism that maybe 2% inflation or for is around the corner. And now things seem to have stalled out. So my view is we just need to sit here and be patient until we see the data and hopefully get convinced that inflation continues to fall back down. The good news is as you indicated, the economy continues to be strong. GDP growth is strong. Consumer spending is strong and the labor market is strong. So we're in a good position from which to take our time before we decide where to go with interest rates.

Neil: Take your time until next year.

Neel Kashkari: Well, I mean, potentially I dialed in in March I had dialed in to interest rate cuts this year to 25 basis point cuts. That was before some of the data that we've seen. I'm in the I'm in the view of we need to wait and see be patient as long as it takes until we get convinced that inflation is on its way back down to 2%.

Neil: So to be clear, you would have been factoring in on that. So we'll dotplot we're all you guys get together and compare where you see rates going or what you would ideally like to see the two rate cuts. Are you down to one right now or are you down to done?

Neel Kashkari: You know, we don't have to make that decision until June. So I'm going to hold off making that decision but certainly the data that we've seen a year right now. I was permitted during commercial No. We need to see the labor market data and the inflation data as well as spending

Neil: how much does all of this spending in Washington complicate things because that is in itself inflationary not exclusively, but it doesn't help your your cause does it?

Neel Kashkari: It complicates things you know what we know that a lot of stimulus was part of the driver not the only driver but a contributor to the high inflation that we've seen. If you when I go out and I look at Where's investment taking place, where construction taking place we know for example, the spending on infrastructure, the spending on new chip plans, all of that on the margin is inflationary. Is it big enough to move inflation at the national economy level? That's a little bit unclear. But we are a little bit at cross purposes where you have some programs that that are really well meaning and for good reason that Congress is focused on at the meantime, we're trying to get demand down in the economy. So there are some complications that we're having to navigate right now.

Neil: I know you don't like to wade into politics deal and everyone likes to say the Federal Reserve is above politics, but it has moved in election. years in the past presidential election years. It's not, you know, immune to doing so. But we do know that President Trump had a very, you know, change a big change in how he thought of Jerome Powell and doesn't think much of him now, probably if he became President wouldn't have reappointed to head the Federal Reserve. So how much does this environment weigh on you guys?

Neel Kashkari: You know, in some sense, it makes things easy, because the higher the political heat gets turned up from either party, the more we all know, we just need to focus on our goals that Congress has given us Congress told us go achieve maximum employment and stable prices that we define as inflation, we call it our dual mandate. And the higher the temperature get, the more we all just hug the data and hug the dual mandate. That's the only way we can figure it out.

Neil: People have that data through the prism of their own political point of view, not all the time. But sometimes, right? There are a lot of people who are supporting Donald Trump who say that any cutting interest rates right now would be unwise, and would only be meant to help Joe Biden, how do you answer that?

Neel Kashkari: Well, I would just suggest to those folks that look at the data that we talk about, we talk about what data we're focused on all the time. We talk about what data we're looking at, and look at the data. Is it matching what we're saying that's motivating our actions or inactions? Ultimately I think that that's going to be the proof.

Neil: Are we walking the walk that we laid out to you when you see some of the names that have been raised? Or hinted at to be the next Fed chairman? They're outsiders and people who are not presently serving on the Federal Reserve right now. And I just learned it but with art laffer being among them and a host of other former Trump administration officials do you do you get concerned about that? Do you ever say, jeez, where am I on this list?

Neel Kashkari: You know, that's not my job to consider who's gonna get appointed or whatnot. I'll say, you know, the any appointee from any president ultimately has to get confirmed by the United States Senate. And I think senators on both sides of the aisle have said the Fed picks are really important and that they give them careful scrutiny and consideration. And so I've actually got a lot of confidence in our process, that good people will continue to get appointed to the Fed, regardless of who's president. We have two term limits on presidents. It seems limitless for Fed Chairman

Neil: Do you think two and done is good enough?

Neel Kashkari: You know, I think Alan Greenspan served for more than two terms, and I think did a very good job during his term. You know, Ben Bernanke served two terms. I think that'll be up to the president to make the right call.

Neil: That's a very, very, you know, threading the needle answer that was that was well played, Neil. Very good, saying. Thank you very much.