Kashkari Advocates for Clear Communication of Fed's Reaction Function Amid Inflation Concerns

Minneapolis Fed President Neel Kashkari says clear communication of the Federal Reserve's 'reaction function' is helpful for markets and the public. He made this statement in an interview with CNBC, where he also repeated his call for a series of small interest rate hikes to contain inflation.

Kashkari believes that understanding how the Fed will likely respond to economic developments is valuable for market participants and others. He thinks it's helpful to continue explaining the reaction function to the public, letting them figure out how officials will interpret and respond to inflation, employment, and broader economic trends.

Warsh has set up five task forces to explore ways the central bank could overhaul its policy conduct, including one focused on communications strategies. He has asked for recommendations by 2026 but may gather interim updates as early as this month.

Kashkari also spoke about a report that Warsh floated cutting back on regularly scheduled Fed policy meetings each year. Kashkari said he doesn't have a strong opinion and believes the current eight-meeting schedule is not magic. He mentioned that emergency meetings can be called when necessary, but this would send a signal that the FOMC is concerned.

Kashkari dissented at last week's rate-setting meeting, preferring a quarter-percentage-point increase to combat inflation. He argued that inflation has been driven by both supply shocks and excess demand in certain categories associated with AI investment. His goal is not to slow the economy but to get inflation back down to 2%.