tl;dr
The president of the Federal Reserve Bank of Minneapolis, Neel Kashkari, warns of heightened recession risk in the US due to business uncertainty amid ongoing tariff negotiations. Businesses are hesitant to invest until tariff outcomes are clear, which could slow economic activity. Similarly, Chicag...
Minneapolis Fed President Neel Kashkari warns of increased recession risk due to business uncertainty amid ongoing tariff negotiations.
Businesses are hesitant to invest as they await clarity on tariff outcomes, which impacts economic growth.
Kashkari emphasizes the need for the Federal Reserve to prioritize controlling inflation over stimulating growth if faced with stagflation.
Persistent elevated inflation over the past four years raises concerns about losing the inflation target anchor, necessitating a cautious approach by the Fed.
Kashkari highlights that many businesses remain on hold regarding investment decisions because they are uncertain about where tariff negotiations will ultimately settle.
This hesitation introduces downside risk for the economy, potentially increasing recession risk.
Chicago Fed President Austan Goolsbee also cautions that current policies could result in stagflation, characterized by stagnant growth, high inflation, and high unemployment.
In the face of persistent inflation paired with economic weakness, Kashkari argues the Fed must focus on controlling inflation to maintain the 2% target.
With inflation elevated for four years, he expresses nervousness about losing inflation expectations' anchor.
He stresses that if inflation had been steady at or below 2%, the Fed might tolerate temporary tariff-induced inflation, but the ongoing high inflation necessitates vigilance.
The ongoing tariff uncertainty and sustained inflationary pressures present complex challenges for policymakers aiming to balance growth and price stability.
This environment underscores the importance of clear policy signals to restore business confidence and economic momentum.