Minneapolis Fed chief: Could take "years" to reach 2% inflation target

The Federal Reserve begins its two-day policy meeting today — and Wednesday afternoon it will very likely raise its interest rate target.

The intrigue: Axios spoke with Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, over the phone on April 21 as part of our reporting for a recent deep dive on the Fed.

The highlights

On the supply chain snarls and whether the Fed should have anticipated them in setting policy last year:

• "I've spoken to a lot of global companies in my district who have very complex supply chains around the world. Even they have exhibited surprise in how complicated these issues have become and how enduring they have become.
• They've told me that when one area would get resolved, some new area in their supply chain would flare up as a new problem. So it was like a game of whack-a-mole. I don't think any of us, certainly in our lifetimes, have experienced this before. So that's one where I'm a little bit more sympathetic that it was hard to foresee.
• "And by the way, recently conversations I've had have [indicated that] things started to get better in Q1. And now with Ukraine and Russia, and with China under lockdown, they're really concerned that supply chain issues are going to become a big problem again, and we're going to lose the gains that had been made in the prior months."

On the possibility that a new era with higher trend inflation may have begun:

• "There are signs that maybe the economy has moved to a new high-pressure equilibrium … If that's in fact the case, then we're going to have to act pretty aggressively at the Fed to bring it back down into a regime that's consistent with our 2% target.
• "I still think that those fundamental forces that led to a low-inflation, low-growth environment are still there. They're likely being masked by these COVID-related factors. But we need to see. If we really are in a new long-run, high-pressure equilibrium, then the era of secular stagnation is over. And perhaps that was a misdiagnosis by me, and by others, at the start."

On whether Fed policymakers are truly determined to bring inflation down to their 2% target or would declare victory with somewhat higher inflation:

• "As far as I'm concerned, our mandate is still 2%, and we want to get back down to 2%. And if in the future, a future committee wants to deliberate and change that mandate, they can do so. But until that happens, I think we're all committed to achieving the goals that we have agreed upon, and that's 2% inflation, recognizing it's not going to happen quickly.
• It could take a number of years before we get back. But I don't think just drifting down to something above our 2% target and declaring victory ... helps maintain our credibility."

On the role of regional Fed banks like the one Kashkari leads:

• "I think it makes the institution much less vulnerable to political pressure. There've been some proposals [along the lines of] 'Why not have all Reserve Bank presidents nominated by the President, confirmed by the Senate?' Then we end up looking like U.S. attorneys. Whenever a new president comes in, you basically get to fire all the U.S. attorneys and put in place all of your own US attorneys. I don't think that that's a better model that's more insulated.
• "And the fact of the matter is what you and I just spoke about a moment ago. Everybody on the committee, even the most dovish members, are committed to getting back to our 2% inflation target. We feel confident in taking those positions because we're insulated from short-term political pressures. And so I think that this system is not perfect, but I think it works very well in having us focus on the long-term economic outcomes for the American people."