Fed’s Kashkari confident inflation can weaken, but not without pain

Minneapolis Federal Reserve President Neel Kashkari said Monday he’s confident inflation will come back to normal though it’s taking longer than he expected.

Acknowledging that he was on “team transitory” in believing that surging prices wouldn’t last, he said persistent supply-demand imbalances have generated the highest inflation levels in more than 40 years.

While the Fed’s monetary policy tools can help tamp down demand, they can’t do much to get supply to keep up.

“I’m confident we are going to get inflation back down to our 2% target,” he told CNBC’s “Squawk Box” in a live interview. “But I am not yet confident on how much of that burden we’re going to have to carry vs. getting help from the supply side.”

His comments come less than a week after the interest rate-setting Federal Open Market Committee raised benchmark rates by half a percentage point. The 50-basis-point hike was the largest increase in 22 years and sets the stage for a series of similar-sized moves in the months ahead.

Though Kashkari historically has favored lower rates and looser monetary policy, he has voted in favor of the two increases this year as necessary to control spiraling prices. He noted, though, that the burden from tighter policy will fall on those at the lower end of the wage spectrum.

“It’s the lowest-income Americans who are most punished by these climbing prices, and yet your policy tools to tamp down inflation most directly affect those lowest-income Americans as well, either by raising the cost to get a mortgage … or if we have to do so much that the economy were to go into recession,” he said. “It’s their jobs that are most likely put at risk.”

“So this is a difficult challenge I think for all of us, but we also know that letting inflation stay at these very high levels, it’s not good for anybody and it’s not good for the economy’s long-run for potential for anybody across the income distribution,” he added.

On Wednesday, the government will release its latest data on consumer prices, followed by April producer prices on Thursday.

Economists expect the pace of inflation to have eased a bit in April, with the headline consumer price index likely to show an 8.1% increase over the past year, and 6% excluding food and energy, according to Dow Jones estimates. That compares to March’s respective climbs of 8.5% and 6.5%.

Those kinds of numbers provide some comfort to Kashkari, though he said conditions remain challenging as long as supply-demand imbalances remain.

“We just need to keep paying attention to the data,” he said. “Some of the more recent inflation data by some measures is a little softer than we had thought might come in. So maybe there’s some evidence that things are starting to soften by a hair. But we just need to keep paying attention to the data and see where it comes out before we can draw any conclusions.”