Commentary on Political Economy

Monday 29 August 2022


 Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, just said what markets have long suspected but what active central bankers haven’t dared to admit: Markets need to go down — in fact, that’s the point of the Fed’s interest-rate increases and marathon jawboning. And that was the objective of Fed Chair Jerome Powell’s annual speech in Jackson Hole, Wyoming, which triggered the worst equity market selloff since June. 

Here’s Kashkari’s quote to Bloomberg’s Odd Lots podcastwith Joe Weisenthal and Tracy Alloway:

“I was actually happy to see how Chair Powell’s Jackson Hole speech was received,” Kashkari said in an interview with Bloomberg’s Odd Lots podcast on Monday, reflecting on the steep drop after Powell spoke. “People now understand the seriousness of our commitment to getting inflation back down to 2%.”

On one hand, the sentiment is obvious. Since early in the year, it’s been clear that buoyant markets ran contrary to the Fed’s stated objective of fighting inflation. The central bank has crude tools, and one of them is to curb the demand side of the supply-demand equation by making people feel a little poorer, as I wrote in March when the Fed was starting its interest-rate campaign. My Bloomberg Opinion colleague Bill Dudley, who served as president of the New York Fed, shared that view in his piece “If Stocks Don’t Fall, the Fed Needs to Force Them.” 

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