Minneapolis Fed President Kashkari: Inflation appears to have stopped falling and economic activity has proven resilient

Inflation moving sideways raises questions about how restrictive policy is.

While the most recent headline GDP appears somewhat weaker than prior quarters, that slowdown was driven largely by inventories and net exports. 

Underlying domestic demand remained strong.

The labor market has also remained strong with the unemployment rate at a historically low 3.9 percent.

The housing market is proving more resilient to that tight policy than it generally has in the past. 

Given that housing is a key channel through which monetary policy affects the economy, its resilience raises questions about whether policymakers and the market are misperceiving neutral, at least in the near term. 

It is possible that once the reopening dynamics of the post-COVID economy have concluded, the macro forces that drove the low-rate environment that existed before the pandemic will reemerge, pulling neutral back down. 

The FOMC must set policy based on where neutral is in the short run to achieve our dual mandate goals in a reasonable period of time. 

The uncertainty about where neutral is today creates a challenge for policymakers.