Neel Kashkari, Essay: Two Opposing Risks

“In summary, while my baseline forecast remains that the high inflation consumers and businesses are currently experiencing will likely be transitory, I am putting more weight on the possibility that such transitory high inflation could nonetheless lead to an increase in long-term inflation expectations above our 2 percent target. Hence, I now believe the FOMC must balance what I see as two essentially opposing risks: 1) transitory high inflation leads to an increase in long-term inflation expectations, which then leads to sustained high inflation, and 2) once the COVID-19 shock finally passes, the economy returns to the low-growth, low-inflation regime it operated in for the 20 years prior to the pandemic.”