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Minneapolis Federal Reserve President Neel Kashkari on Friday said he thinks millions of American workers on the sidelines will return to the labor market and cool inflationary pressures.
“If the 7or 8 million, or 10 million, Americans who are not working today… are never coming back, than that would give me much more concern that these high inflation readings might be here to stay,” Kashkari said, at a virtual town hall at the Minneapolis Council of Nonprofits.
“But I believe they are coming back,” he quickly added.
The Minneapolis Fed president is one of the strongest doves at the central bank but is not a voting member of the Fed’s interest-rate committee this year. In an interview with Reuters last week, Kashkari said he didn’t want any interest-rate hikes through 2023 but was open to a discussion about slowing down the $120 billion per month in asset purchases.
In his talk Friday, Kashkari said some of the prices increases seen as the economy has reopened are already starting to reverse, citing lumber prices as a prime example.
Lumber price “are falling back to earth. We would expect to see more of these very high readings start to return down to normal,” he said.
In the last expansion before the pandemic struck last year, Kashkari said the Fed was surprised “year after year after year” when it thought the economy had run out of workers.
“When wages started to climb a little bit, people came off the sidelines,” he said, eventually driving the unemployment rate down to 3.5%, a 50-year low.
Several factors are at play holding back workers from returning to the labor market, Kashkari said, including child care issues, continued nervousness about the coronavirus pandemic, and generous unemployment benefits.
“All three factors are holding back labor supply, but by September, all three of those factors should really be better and then we should see more more labor supply in the fall,” Kashkari said.
For years, Kashkari has bristled whenever businesses complain about a lack of workers. He’s urged executives to raise wages to attract workers, calling it basic economics, but executives have until recently seemed reluctant to take that step.
“I don’t know why businesses have this emotional view about wages but they do,” he said Friday.
All three main stock indexes
DJIA,
COMP,
were higher in mid-morning trading Friday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
was up slightly after a strong gain last month in the Fed’s favorite inflation measure, the personal consumption expenditure price index.
