MR. KASHKARI: Thank you, Heather. It’s great to be with you.
MS. LONG: So, let’s start with the big news of today. This morning we learned from the Labor Department that the official unemployment rate is 6.2 percent. So, a lot higher than a year ago, but certainly a lot better than what we were talking about last spring. Where do you think--what do you think the true unemployment rate is right now, and where do you see it by the end of this year?
MR. KASHKARI: You know, Heather, many people have left the labor force. They’ve given up looking for work, so they’re not counted as unemployed. We calculated, the Minneapolis Fed, that the true unemployment rate is around 9.5 percent when you factor in all those folks who a year ago were working who presumably would want to be working now if they had the chance. So, if we accept the 9.5 percent as the true unemployment rate, it’s going to take a long time. I mean, if we cut that--and the unemployment rate before the pandemic hit was around 3 1/2 percent--if we made up half of those gains this year, I think that would be a really remarkable year.
As you know, after the great financial crisis, it took 10 or 11 years to effectively rebuild the labor market and put people back to work. We cannot have another 10-year recovery. I hope we can make a lot of progress this year. But it’ll really depend on vaccine rollouts and how the virus continues to spread and if we can get it under control.
MS. LONG: Yeah, fair enough. I guess in your most maybe optimistic scenario, when do you see the United States labor market getting back to that healthy level that we saw a year ago? Do you think maybe 2023, or you think it may take longer?
MR. KASHKARI: Well, it’d be great if we could do it by--as I said, if we could do it by 2023 that would be great compared to the 11 years it took. And let me just go back. Even before the pandemic hit, in my estimation, we were not yet at what we called maximum employment. Maximum employment, for me, is a labor market that is tight enough that it generates 2 percent inflation on average over time. We had not yet achieved that before the pandemic hit. So, we need to get back to where we were before the pandemic, but then we need to go beyond it to really put all Americans back to work and for the Federal Reserve to achieve the goals that Congress has given us, one of which is maximum employment.
MS. LONG: Yeah, I’m so glad you brought up the maximum employment. You sort of hinted a little bit at how you define it, but it’s one of these terms that seems that many Fed leaders look at a little bit differently. Can you say a bit more about, in your eyes, what really defines maximum employment? We heard the Fed Chair Powell yesterday implying that he wants to see the unemployment rate for many demographic groups really coming down, not just the average one we always quote for the average American. What do you see?
MR. KASHKARI: Well, yeah, I agree with the chair’s comments. And he also talked about labor force participation and employment to population. Those are all really important metrics as well. I think about it this way. We have our dual mandate. So maximum employment, and stable prices, what we define as 2 percent inflation. I think of them kind of like a seesaw. As the economy gets stronger, labor market tightens, eventually leading to inflation.
Well, what’s--how does that work? There’s a bridge. There’s one bridge from a labor market to wages, and then from wages to prices. So, for me, there’s a lot of complexity. But for me, when the labor market gets tight enough that wage growth picks up, that it translates into 2 percent inflation, that’s maximum employment. That is the--that is the goldilocks that we are trying to achieve. We have been undershooting inflation for a decade, and we’ve been undershooting in the labor market for a decade. So, we have to do better to achieve both of our goals.
MS. LONG: Got it. One more question, and then I want to jump to inflation. But I wanted to ask you specifically, since you had so much experience coming out of that Great Recession, what are you most worried about coming out of this crisis in terms of long-term scarring? You know, economists like to talk about who’s going to be left behind. Can you talk us through what groups you’re really watching, or parts of the economy that you think could be really hard to bring back?
MR. KASHKARI: You know, there’s bad news and good news. And after the financial crisis, a lot of economists and the mainstream consensus was that people who had left the labor force for six months or a year were gone, that we would never be able to reach them and bring them back in. That was wrong. After the economy continued to heal and the labor market tightened and wages started to grow, we started bringing people back in. So, number one, we should never give up. We should never say these folks are gone, never to be recovered. But we also can’t let it take 10 or 11 years to reach them.
So, we know that for example, women have been disproportionately affected by this crisis, especially related to childcare issue and the inavailability of childcare. We know that lower-income workers, especially service workers, have been pushed to the sidelines, and that’s disproportionately affected many minority groups. So that’s where we see the most economic pain, and those are the folks who we really need to work hard to reach to bring back in. It’s not only important for them. Of course, that’s true. It’s also important for our economy’s potential. It turns out our economy had more potential than economists realized because more people wanted to work, if given the chance. And we need to help them get that chance.
MS. LONG: I want to turn to inflation. You’ve mentioned it a couple of times. And in your Fed, Minneapolis Fed’s latest submission to what’s known as the Beige Book that came out this week, you all noted that in your district you have seen some evidence of rising prices. Are you concerned at all about inflation right now, and what would it take to make you concerned?
MR. KASHKARI: You know, I’m not. One of our objectives, we announced--the Federal Reserve announced a new monetary policy framework last year. One of the goals of that framework is to modestly increase inflation and inflation expectations in the near term while leaving long-term inflation expectations anchored at our 2 percent target. That’s actually a pretty complicated thing for a central bank to do. But we’re seeing some evidence--it’s still early--we’re seeing some evidence that that framework is delivering the inflation outcomes that we were seeking--a modest boost in the near term while leaving inflation expectations anchored in the long term. And so, we have very powerful tools if inflation starts to climb in a sustainable way that if we get concerned about it, that we can deal with that. It’s much more difficult for a central bank to boost inflation a little bit. I think our new framework gives us a good chance to do that.
MS. LONG: And we’ve had quite a few reader questions about this, so I want to ask one from this is Rand Jack from Canada actually, so a global concern about this. And he asks, "How does the Fed plan to control the pending potential of significant inflation?"
MR. KASHKARI: Well, we’ve said in our monetary policy statement that the Federal Open Market Committee puts out that we’re going to stay at the zero lower bound on interest rates until we get to maximum employment, until inflation gets to 2 percent, and until we’re confident that inflation’s going to continue to rise. When those criteria are met, then we will adjust rates as high as we need to, to make sure that we are keeping inflation reasonably around our 2 percent target and averaging 2 percent over time.
I am very confident that my colleagues on the Federal Open Market Committee and I are committed to achieving our dual mandate goals, and I’m not concerned about our ability and willingness to deal with high inflation. We need to get there, and we haven’t been there for basically 10 years.
MS. LONG: Can I jump in on bond yields? They’ve obviously moved up quite a bit in the last two weeks. We heard the Fed Chair Powell say yesterday, I think he called it something that was notable and caught my attention, he said. So how do you read the significance of what’s going on in the bond market? What’s your take?
MR. KASHKARI: Well, if you look at nominal yields have come up, so the 10-year Treasury is around 1 1/2 percent. It’s come up quite a bit in the last few months. To me, it’s really important to understand what’s driving that. So real yields, so as based upon a TIPS market, they’ve come up a little bit recently. But the 10-year yield is still--the 10-year real yield is still basically flat from where it was over the summer, well below where it was pre-pandemic. And the five-year yield has still fallen quite dramatically from last summer, and again, well below where it was before the pandemic.
If we were seeing a real uptick in real yields, that would give me pause. That would give me concern that the amount of accommodation we’re providing the economy is reducing, and that might warrant us considering a policy response. But we’re not seeing much movement in real yields. Most of the movement is in that inflation expectations or inflation compensation.
And again, as I go back to our framework, our framework, our new framework was designed to boost inflation and inflation expectations in the near term while leaving long-term inflation expectations anchored. The recent movements that we’ve seen in the Treasury market, both the TIPs market and the nominal market, suggest that our framework is delivering what we wanted it to deliver. Now again, I don’t want to declare victory. This are recent moves. It’s still early. But at least it’s signaling in the right direction our framework is providing the kind of accommodation that we hoped it would.
MS. LONG: Got it. We had your colleague Raphael Bostic, the head of the Atlanta Fed, on Post Live just a few weeks ago, and he suggested that, in his view, interest rates may need to come off that zero where they’re sitting now, possibly in 2022. Do you share that view?
MR. KASHKARI: You know, it would be great if the labor market fully recovered and we achieved maximum employment and we got to 2 percent inflation and we had confidence it would climb. What I like about our new policy statement is the forward guidance component of it, is it is what we call state-based rather than date-based. We have to achieve certain objective outcomes in the economy and in the labor market, and then we would judge it’s the appropriate time for liftoff of the federal funds rate. If that can happen sooner than I expect, that would be great for the economy and for the American people. But my base case is it will take longer than that.
MS. LONG: Got it. So, the other big news as we sit here today is the Senate is debating this 1.9 trillion stimulus package, a relief package as it probably should be called. You’ve been very outspoken given your experience coming out of the Great Recession that you think they really need to stick with this and see this support all the way through the end of the pandemic. Do you think this bill is sufficient to do that?
MR. KASHKARI: Well, it really is going to depend on the dates that they put in it. You know, one of the big surprises is this pandemic has lasted longer than a lot of policymakers thought. So, when Congress came together last--a year ago and created the original CARES Act, it was meant to be a bridge for two or three months, shut down the economy, reopen, go back to work. Of course, the pandemic was not nearly over after two or three months. In December of last year, then they extended, for example, unemployment benefits. They expire at the end of this month, at the end of March. How long is the pandemic going to continue? How long is the vaccine rollout going to take? What’s happening with these new variants?
I like the way you framed it. It really, in my mind, is not meant to be stimulus. It’s meant to be relief for those families who’ve lost jobs and for those small business who’ve been dramatically affected by this. I just firmly believe--and I applaud Congress for being aggressive--that they should continue to support people who’ve lost their jobs until we can get this pandemic behind us. I’m not going to opine on the overall size of the package or the size of the checks. That’s obviously completely up to Congress to decide. But I applaud them for leaning forward to do more to support the roughly 10 million Americans who are still out of work.
MS. LONG: Yeah. In the Washington Post op-ed that you wrote last month, where you were urging then Congress to continue the aid, I was surprised you also had a line in there that you said that they shouldn’t make it so targeted. There’s been this real debate about how targeted some of the aid can be. And I know, you know, your job isn’t to give specific advice to Congress, but obviously there’s been this big debate about these stimulus checks and whether or not we should give them to people who are maybe in a middle-class income. You know, in your mind is there a case to be made that those stimulus checks should go to a broader segment of the population, similar to what happened last year?
MR. KASHKARI: Well, one of the things we know is that even the expanded unemployment system and the expanded benefits, they still miss people who you and I would think and who were designed to be captured. So, it’s not perfect. Any time you try to design a targeted system in the scale of the U.S. economy, you end up missing people. And we did this in 2008 with our various housing programs. We wanted to just reach homeowners who needed a little bit of assistance. We ended up not helping very many homeowners. So, the advantage that Congress did with the one-time payment, the checks, so to speak, is it’s a much broader brush and you capture many of the people who you missed through the unemployment system.
Now of course the downside is, you’re going to reach a lot of people who don’t actually need the assistance. From my perspective, that’s actually what are they going to do with the money. The evidence so far is they save the money, they don’t spend the money, and that’s why it’s actually--it’s not very efficient stimulus, but it actually is quite effective relief. And as a monetary policymaker, as a central banker, the money that they might choose to send to people who don’t need it, if it’s saved, that’s not inflationary. And so that actually doesn’t give me concern. Of course, Congress needs to think about the broader fiscal position of the U.S. government. There are a lot of issues for them to consider. But as a central banker, money that is sent to an American that puts it in the Bank, that doesn’t give me concern because that’s not inflationary.
MS. LONG: The other thing that’s different about this particular bill maybe than some of the last ones or some that came out of the great financial crisis is, there’s a lot of money here that’s really directed towards lower-income families, like expanding the child tax credit and expanding the earned income tax credit. And so, in addition to the checks--everybody’s focused on the checks--but there’s a lot more provisions in this that are really meant to help the lower part of the income spectrum. And I’m wondering, in your mind, is that--is that different than what we saw coming out of the Great Recession, this push to really help the poor Americans?
MR. KASHKARI: Well, I would say one thing that’s different about this crisis than the great financial crisis is that this crisis has been disproportionately targeted at lower-income workers, service workers, those with fewer skills, those who can’t do their jobs remotely like you and I are doing and like your viewers are participating in. So, it’s been a deeply unfair pandemic in terms of who got hit by it, and not to mention if they kept their jobs, there’s a good chance they’re in a service industry where they’re then getting exposed to the virus, potentially, and they may have less access to healthcare than you or I have. So, there are many dimensions of how unfair this pandemic is. So, I think that’s probably what’s motivating Congress to say, hey, let’s provide more assistance to those lower-income workers who’ve been more affected by this. My focus is on how do we get through this pandemic, get Americans back to work, rebuild the labor market, while keeping our--you know, keeping in mind we have to keep inflation in check. I think we have the tools to do that, and I think Congress has played a very important role so far.
MS. LONG: So, you did bring up the deficit and the debt a little bit. You sort of alluded to it. I’m curious to hear do you have any concerns about the large government spending that the United States is currently doing? We obviously have a federal debt that’s at the largest point since any time since World War II. Is this a concern right now? And maybe would it be a concern to you in a year or two if this continues?
MR. KASHKARI: It’s not--for me it’s not a concern right now because I view this as effectively wartime spending. And the U.S. government and the United States of America has extraordinary capacity to borrow and to fund the wartime spending we need to do to get this pandemic under control and to put Americans back to work. There are long-term structural issues that we face as a country.
If you look at the CBO forecast of debt and deficits over the next several decades, really driven by demographics and entitlement programs, those clearly go up and up and up. So, at some point the country’s going to have to come to a political consensus on how to address those deficits by either tax increases or benefit cuts or some combination, or more immigration to get our workforce growing more quickly. That’s a huge political challenge for our political system to tackle. But I’m not concerned about the wartime COVID spending that we need to do right now.
MS. LONG: And I’m curious, stepping back on a big, big picture view, do you think policymakers have learned the lessons from the 2008-09 financial crisis? Sort of how do you assess--I know we’re still in the midst of it, but kind of how do you assess the response to this crisis that we’re in now with the pandemic?
MR. KASHKARI: You know, I’d give policymakers, both fiscal policymakers and the Fed, very high marks in having learned many of the lessons from 2008. You know, the Fed, we moved much more aggressively this time than we did in--than the Fed did in 2008. And this is not a criticism of the 08 Fed. A lot of what they were doing, they were doing the first time. We now realize how to do that. Those tools were effective. Under Chair Powell’s leadership, we moved very, very aggressively last March and last April. That was the right thing to do.
Similarly, I think on Congress, recognized that this pandemic is different than 08. This is--nobody’s at fault. This isn’t a case where you bought a home you couldn’t afford. So, the issue of moral hazard is much reduced in this crisis, and I think Congress came together in a bipartisan way, very aggressively to support workers and to support small businesses. And I absolutely think that was the right thing to do. And I do think that was in part because of what we learned after 2008.
MS. LONG: There have been obviously a couple of hiccups, and in particular aid to small business and maybe the Fed’s main street lending program sometimes get held up as hiccups. I know in your latest report from the Minneapolis Fed, I was really struck by what you all are seeing with minority-owned businesses in your district. I think you had a line in your latest report, if I could just read a bit of it, that said you all had done some sort of survey in your district and that a significantly high share of these minority-owned business said they would have been insolvent within three months if current economic conditions persist. What more needs to be done for these small businesses?
MR. KASHKARI: You know, it’s tough. I’ve seen reports that the PPP program, which is a very broad-based program, that they may not have all the funds taken up by small businesses. That’s a concern. You know, one of the challenges in any kind of national aid program is there’s just no way for the government, either the Fed or the Treasury or Congress, to reach hundreds of thousands of small businesses directly. We have to through the banking sector. And one of the things we discovered is, many of the smallest businesses may not even have a banking relationship. They may not have a bank account. They may not have a relationship with their community development financial institution. So, there’s been a big push to make sure that those CDFIs, as we call them, have the capital they need to get out and reach those small businesses. But it’s not perfect.
And you know, even vaccines, I’m hearing anecdotes of people who want--who are eligible to get a vaccine but they don’t have a computer. So, they can’t register to go get signed up for a vaccine. So, we’re seeing many of these folks who are disproportionately hurt by this crisis just are not connected, either to the Banking sector or to the internet, to get the health resources that they need or the economic resources that are available to them. And that’s a huge challenge for all of us.
MS. LONG: Yeah. And do you think that there’s more that the Federal Reserve could do. I know you can’t do it all and, you know, you all weren’t administering the PPP program, for instance, but is there more that you think the Fed can do in the coming months?
MR. KASHKARI: Well, you know, we do have a role to play. So, the Minneapolis Fed, with all of our colleagues in the Federal Reserve system, we have set up a PPP liquidity facility to make sure that banks that are making those PPP loans can bring them to us for funding so that they can go on and make more loans. That’s been a huge program for the Minneapolis Fed but for the Federal Reserve as a whole.
And as part of that, we have worked very hard in close collaboration with the Treasury Department and the Small Business Administration to make sure that those CDFIs have access to the program and can participate. So, there are things like that that we’re doing.
Another piece of work that we’ve done at the Minneapolis Fed, we’ve done a lot of work to make sure that tribes across the United States, Indian tribes, can access these programs and that the programs are designed in a way that the Indian tribes can access them. They’ve got some unique legal and economic constraints that needed to be factored in. So, there is work that we are doing. There’s more work that we are going to do. But, you know, as you indicated, there’s limits to what the Federal Reserve can do. Some of this must be done by the executive branch and some of it by Congress.
MS. LONG: Yeah. So, any time that I tell people I’m interviewing a Federal Reserve leader, the number one question that I get that people want me to ask is, do you think the Fed’s policies are making inequality worse. You know, a lot of people, they look and they see the soaring the stock market. They see these home prices that have soared in the last few months, and then they see all these people that you and I have been talking about who are still out of work or who are still struggling with their business, particularly small businesses, and it just feels very unfair to them. So, I’m wondering how do you grapple and respond to those concerns that the Fed policies are worsening inequality.
MR. KASHKARI: I respond to that--I obviously pay attention to those concerns and all of the data you just talked about. I respond to that by saying for the--many Americans, they don’t own stocks, they don’t own a house. For many Americans, the most valuable asset they have is their job. And by using monetary policy to tighten the labor force, what we saw before the pandemic hit, the highest wage growth was happening with the lowest income workers, folks who were long-overdue for a raise. Just think about this. Think about a job that generates $30,000 a year in income. What kind of an asset would you need to generate $30,000 a year in income? If you put a 10 percent discount rate, it’d be a $300,000 asset. Of course, you can’t get a 10 percent interest rate today. If you put a 1 percent discount rate, that’s a $3 million asset. So, turns out jobs are enormously valuable to folks.
And if we say, well, now, we’re going to raise interest rates to try to put a lid on the stock market because we want to keep the stock market down, that--who’s going to get hurt by that? It’s really going to be those lower-income workers that we are trying to bring back into the labor force and to try to help them earn higher wages. That strikes me as a lousy trade. I would much rather have an economy where everybody in America who wants to work is able to find a job and we’re seeing healthy wage growth consistent with our 2 percent inflation target. I think that’s a much better outcome for everybody.
MS. LONG: And I guess do you think the Fed’s mandate should alter at all to better reflect a more encompassing economy, you know, to better reflect these goals that society has now of reducing inequalities and ensuring a better outcome for all?
MR. KASHKARI: You know, I actually think our existing goals of maximum employment and stable prices are very powerful to benefit everybody. And I think we’ve really learned a very powerful lesson over the last several years, that there’s more slack in the labor market than we realized. More people do want to work, and we shouldn’t raise rates preemptively just because we think inflation might be coming someday down in the future. So, I think with our new framework we’ve taken a big step forward in approaching monetary policy in a way that can really benefit all of America.
MS. LONG: Yeah. Last thing I wanted to ask, you’ve been tweeting a lot about wages, and you’ve mentioned it here a few times. You were pointing out that companies that are complaining they can’t find workers now may need to raise their wages to attract people back. There’s also a debate about whether the federal minimum wage should go up. And I’m wondering, do you think that that would be a wise economic policy to raise the federal minimum wage.
MR. KASHKARI: Well, I think it’s going to depend on, you know, there are a lot of local conditions that are different. So, a minimum wage in San Francisco versus a minimum wage in Minneapolis or in Idaho will have very different effects. I also think the conditions on when those--you know, usually when people talk about raising the minimum wage, it moves up slowly over time. If you were to raise the minimum wage when the labor market is really tight, there will probably be fewer tradeoffs. If you raise the minimum wage all of a sudden when there’s still a lot of people who are unemployed, on the margin that will probably make it harder for folks to then find jobs. So, a lot of the details do matter. But obviously if you look at how long it’s been since the minimum wage has been raised, prices have gone up. It has not kept up. And so, you know, I’ll defer to Congress’ judgment on how fast to raise the minimum wage and whether to do it regionally or whether to do it nationally. But I do think that there are tradeoffs that people need to think about as they design that path for how the minimum wage will move.
MS. LONG: Yeah. We only have a few minutes left. I thought I’d do kind of a fun rapid-fire round. So, let’s start with an easy one. Are you still a Cleveland Browns fan, or have your allegiances shifted?
MR. KASHKARI: No, lifelong Cleveland Browns fan. It’s in my blood. Nothing I can do about it. But we had a great season last year, and you know, fingers crossed. Optimistic for the future.
MS. LONG: You’re also a prolific tweeter, and it’s fun to watch your Twitter interactions. I’m curious, what’s something fun or interesting you’ve learned from being on Twitter in the last few weeks?
MR. KASHKARI: Boy, in the last few weeks? You know, there’s a CNBC reporter, Carl Quintanilla, who I follow on Twitter, and he puts out the most interesting little factoids of music history. And he put out one recently with Rush and their song Limelight. And I don’t remember exactly what he said, but I remember how much I love that song. So that was fun to see Carl tweeting about Limelight.
MS. LONG: Yeah. So, have you had the COVID vaccine yet?
MR. KASHKARI: I have not. I’m eager to get it as soon as it’s my turn. In Minnesota you can sign up on the website, put in your age, your other information, and they’ll contact you when it’s your turn. My guess is it won’t be for a while.
MS. LONG: I believe you’re a dad of two daughters now.
MR. KASHKARI: One son.
MS. LONG: Oh, I’m sorry, a daughter and a son. What have you learned about the economy from being a dad?
MR. KASHKARI: Well, boy, I mean, being a dad really changes your life in every possible way, and all for the positive. I’ll tell you this, you know, one of--COVID has been a terrible crisis for so many people, but one of the little perks for people like me who’ve been lucky enough to keep their jobs and get to work from home--I’m in my basement--is to get--spend a lot more time with my young children, and that’s really been a joy for me and for my wife. And so, there are little perks even in a terrible pandemic.
MS. LONG: And lastly, have to ask you as a Minnesotan now, have you tried ice fishing?
MR. KASHKARI: I have tried it once, and I had the authentic Minnesota ice fishing experience, which is we drank beer, and we didn’t catch any fish.
MS. LONG: All right. We’ll leave it there. Neel Kashkari, thank you so much for your time and your insights today.
MR. KASHKARI: Thank you, Heather. It’s been great.
MS. LONG: Please join us again on Monday at 2:00 p.m. for a very special discussion with former Secretary of State Hillary Clinton, who will be speaking on International Women’s Day. Please tune in on Monday.
[End recorded session.]