Fed Kashkari Believes Wages Are Not Driving Inflation
Neel Kashkari (Fed President from Minneapolis) has recently made a lot of comments related to the inflation outlook of the central bank. These comments are ahead of the highly anticipated CPI data, which will have long-term implications on the currency and stock markets.
Kashkari has said that the waves are not driving inflation... In fact, that's a wrong assumption, and the real reason behind inflation in the USA is the stimulus, supply challenges, and the Russian invasion of Ukraine.
He said that instead of driving inflation, wages in the USA are actually trying to get close to the inflation levels. Furthermore, the traditional economic models are not working properly given the current circumstances. He also commented on how the economic potential of the USA has gone lower due to the pandemic.
According to Kashkari, the job of the Fed is to actually balance the low supply levels by controlling the demand. Once the demand is controlled, it will lead to a balance between supply and demand, thus controlling inflation.
He also stated that the Fed is committed to bringing down inflation using the tools at its disposal. And once inflation is under control, the interest rates in the USA will also normalize.
He was fully committed and confident that Fed would get inflation under control. These comments are coming ahead of the CPI release, which will tell us about the next direction of the USA.
Kashkari also expressed his desire to have a tight economic policy much sooner. However, he made clear that even that wouldn't stop the inflation from getting high.
Furthermore, Kashkari also said that there are some components of inflation which are out of the Fed's control.
After these comments by Kashkari, there were no major movements witnessed in EUR/USD, USD/JPY, and other big pairs. It seems that traders and investors are playing it safe ahead of the big event of the data.