PBS News Hour

GEOFF BENNETT: Welcome to the "NewsHour."

Inflation came in higher than expected last month, raising concerns once again about its persistence.

Some experts also worry this rise could either delay or prevent a series of interest rate cuts expected from the Federal Reserve later this year.

Last month, the Consumer Price Index climbed 3.5 percent year over year, pushed up by gas, rent and car insurance.

Neel Kashkari is the president of the Federal Reserve Bank of Minneapolis, and he joins us now.

It's great to have you with us.

NEEL KASHKARI, President, Federal Reserve Bank of Minneapolis: Thank you.

It's great to be with you.

GEOFF BENNETT: So, federal officials, Federal Reserve officials, initially penciled in at least three interest rate cuts by the end of 2024.

You have raised the possibility that we potentially shouldn't have as many or any cuts this year.

How does this report today affect your thinking on this?

NEEL KASHKARI: Well, it's a little bit concerning.

In the second half of last year, we made a lot of progress in bringing inflation down very quickly, not all the way to our 2 percent target, but to around a 3 percent level.

And then, in the beginning of this year, the first three months, some of that progress seems to have stalled.

My colleagues and I have all said that we will cut interest rates once we get convinced that inflation is well on its way back down to our 2 percent target, and we were waiting to see some more data to get that confidence.

The recent data doesn't give me that confidence yet.

So, for me personally, I think we have to wait a while longer to see more progress towards our 2 percent target.

GEOFF BENNETT: How many cuts do you anticipate and when?

NEEL KASHKARI: Well, in March, I had jotted down that I would expect, if inflation continued to fall, that two cuts would be appropriate over some -- over the course of this year.

The longer that inflation just moves sideways and doesn't actually move back down, that would make me say we should pause indefinitely until we see that confidence that inflation is beat.

Now, the good news is, the job market remains very strong.

There's a low unemployment rate.

A lot of jobs are available.

And the overall economy appears to be very healthy and robust.

So we're in a good position to take our time to get this data.

GEOFF BENNETT: Well, on that point, is there a risk that the Fed -- in keeping rates high to tame inflation, is there a risk that they could essentially slow down the economy?

NEEL KASHKARI: Well, that's what we're -- that's what interest rate increases are trying to do.

We're trying to tap the brakes on some of the demand in the economy to bring that inflation back down.

But we will obviously -- just as you said, we want to be careful that we don't overdo it, and then slow the economy too much or potentially tip the economy into a recession.

There was a lot of concern a year ago that the economy would be headed into recession because we raised interest rates so quickly.

The good news is the U.S. economy proved to be remarkably resilient.

A lot of Americans came back to work.

We had a lot of immigration coming in, filling a lot of important jobs.

All of that put a lot of resilience in the economy.

So we're in a good position today, but we can't take that for granted.

We have to keep our eyes open on both inflation and the labor market.

GEOFF BENNETT: At this point, what is causing inflation to be so entrenched and intractable?

NEEL KASHKARI: Well, a bunch of things.

I think that there's some changes in consumer behavior.

We know that, before the pandemic, consumers were saving around seven or 8 percent of their earnings.

That seems to be lower, at least indefinitely lower right now.

People are out there spending their money.

If people are spending more and saving less, that's more demand in the economy, and you would expect some more inflationary pressure.

We also have some pent-up demand for housing.

We have seen sticky housing inflation.

After the financial crisis in 2008, we didn't build enough homes to keep up with our population growth.

So there's some structural reasons that there's a lot of pressure on homes and on apartment rents, for example.

So, some of these things are going on.

We hope to unwind in the near future.

Some of them may be more persistent, and then we just have to take that on board with what we do with interest rates.

GEOFF BENNETT: What will the Fed chair need to see to feel confident that inflation is heading toward the Central Bank's 2 percent target on a sustainable basis?

NEEL KASHKARI: Well, I think -- I mean, I don't want to speak for the Fed chair, but I think, for myself, we want to continue to see progress that the inflation readings are continuing to come down and that it's coming down across different categories.

We know that goods inflation -- people bought a lot of goods in the pandemic.

Goods inflation has come back down.

Housing inflation has proven to be sticky.

Services inflation -- we're all going out on airplanes.

We're going to restaurants.

The services side of the economy, which is very labor-dependent, that also has really been quite sticky.

And so I think, for me, I want to see more progress on housing.

I want to see more progress on services, so that I have confidence that we're getting back down to our 2 percent inflation target and so that the American people can put the concerns about inflation in the rearview mirror.

GEOFF BENNETT: And realizing that the Fed operates as an independent and nonpolitical organization, what are the implications if the Fed cuts rates for the first time later this year, let's say, in September, ahead of the November election?

NEEL KASHKARI: You know, my colleagues and I are absolutely committed to making the right calls based on the economic data.

And the Congress has given us our charge.

Congress has told us, achieve our maximum employment, as many Americans as possible working, and our stable prices, which we have defined as 2 percent inflation.

And my colleagues and I are absolutely united that we're going to make the best calls that we can, based on what the data is telling us, not focusing on politics.

Politics is up to the American people.

It's up to Congress.

It's up to the executive branch.

Our jobs are to stay out of it and just focus on what the data is telling us.

And that's the best thing we can do, I think, for the economy as a whole.

GEOFF BENNETT: Neel Kashkari is president of the Federal Reserve Bank of Minneapolis.

We appreciate your time and your insights this evening.

NEEL KASHKARI: Thank you.