U.S. Central Bankers Meet In Wyoming For Annual Conference
NOEL KING, HOST:
Today, investors and global financial markets are keeping an eye - or possibly all their eyes - on Jackson Hole, Wyo. U.S. central bankers are meeting there for an annual conference. Federal Reserve Chairman Jerome Powell will talk today. A lot of people are eagerly looking forward to that. President Trump has been after Powell to lower interest rates to stoke the U.S. economy.
On the line with me now is Neel Kashkari. He's president of the Federal Reserve Bank of Minneapolis. And he is in Jackson Hole for the conference. Thanks for joining us.
NEEL KASHKARI: Thanks for having me this morning.
KING: So you agree with President Trump that the Federal Reserve should cut interest rates. Why?
KASHKARI: Well, first of all, interest rates matter to the economy because this is the tool we use to either boost the economy or slow it down. And it affects everybody. You know, if we allow the economy to grow as strong as it can, that should lead to higher wages for all Americans. And that should hopefully - if we have lower interest rates, it'll be cheaper for families to be able to buy a house or buy a car, as an example.
I've been arguing that the U.S. economy is not at risk of overheating, that we can continue to allow the economy to grow stronger. And so that's why I've been arguing we need to have lower interest rates over the last few years. At the same time, some of the risks have actually increased. You see a lot of businesses in America that are nervous today about tariffs and trade and the global economy. And they're pulling back on their investments. And if businesses don't invest for the future, we'll have shorter economic growth now, and we'll have shorter economic growth in the future. So for a variety of reasons, I think that my colleagues and I should probably take it easier on interest rates, let the economy grow more quickly. And if we need to, we can always raise interest rates and tap the brakes later.
KING: Many of your colleagues disagree with you. President of the Kansas City Fed, Boston's Fed president - they say, you know, unemployment is at record lows. The economy is not doing badly. Why not wait for more evidence of a real slowdown before we take the step of cutting rates?
KASHKARI: Well, one of the things I feel like we've learned in the last 10 years - and around the world - is that it's better to act early than to be late. I mean, back in the financial crisis in 2008, I think we were always late in responding. And I think now, if the global economy is slowing and we wait until we're sure we're headed into a recession, it's going to be much harder to avoid that recession once it's in front of us. And so, to me, it's safer and more prudent to take a little action now. And if we need to raise rates in the future, we always can. But this is the nature of the debate that we're going to be having over the next month.
KING: Let me ask you what you think all of this has been like for Chairman Powell because the president has been openly shouting at him on Twitter to cut interest rates - about interest rates and some other things. Do you have any insight into whether this is a difficult time for him?
KASHKARI: Well, I have great admiration for Chairman Powell. I think he's an outstanding Federal Reserve chairman and an A-plus public servant. And I completely support him in his role. I - one of the things I really credit him is that all of the noise - the political noise out there has pushed him and pushed all of us to double down on focusing on data, focusing on analysis and just do our best to make our best judgments based on what we think is right for the U.S. economy and not react to political pressure. I think he is leading us in that direction. I think he's doing a terrific job. And we're all committed to focusing on analysis, not politics.
KING: I hate to ask you to speculate. But do you think Chairman Powell has more backbone than maybe President Trump expected?
KASHKARI: Well, I can't speculate on the president's expectations. But I will say this - Chairman Powell is an A-plus public servant and absolutely knows what his job is and is doing a terrific job leading us in that direction.
KING: Why is it so important that the Federal Reserve is independent, that it doesn't just do what the president says?
KASHKARI: One of the things we've learned in America and all around the world is that when the central bank plays politics, it leads to really bad outcomes over the long run for the economy. Virtually every politician wants a strong economy when they're headed into a reelection year. So it'd be very easy for them to just say, well, cut rates and boost the economy to help my reelection chances.
But if we do that at the wrong time, it actually can be bad for the American people because it can lead to the economy overheating. And then we can have high inflation. And that can be very damaging for families and for workers all across the economy. So we have to avoid that. The best way to avoid that is to set the politics aside, make our best decisions based on data and analysis.
KING: Let me ask you about something you mentioned a bit earlier. There are some signs of slowing global economic activity - you know, shrinking economy in Germany is a big one, slowing business investment in the U.S. How worried are you that a recession is on the horizon for this country?
KASHKARI: Well, it's very hard to predict a recession. But the single best predictor we have over the past 50 years is this nuanced thing called the yield curve, where treasury government bonds - longer-term bonds - have a lower interest rate than shorter-term bonds. You know, if you - if any of your listeners buy a treasury bond, you're lending money to the U.S. government. And if you're going to tie up your money for 10 years, typically, you want a higher interest rate than if you tie it up for one year.
Well, this quirk has happened now where long rates are lower than short rates. That's been a very good predictor of recessions historically. And it signals that investors are nervous about the future. That has now happened. And so I take that signal seriously. And it's a reflection of worries about downside risk in the U.S. economy.
KING: Neel Kashkari is president of the Federal Reserve Bank of Minneapolis. We reached him in Jackson Hole, Wyo. Enjoy the conference.
KASHKARI: Thank you very much.
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