Fed’s Kashkari: ‘I’m Not Seeing Evidence Yet that Long Run Inflation Expectations Are Climbing’

EXCERPT:

KASHKARI: "Yeah, I think your observation goes to the heart of the matter. And I always go back to fundamentals. Why do we have a trade deficit in America for decades? It’s because -- this is just the math of economics — investors around the world have viewed America as the best place to invest. And if that’s true, we will have a trade deficit. And so now, one of the ways that expresses itself is in lower yields across asset classes in America. So if the trade deficit is going to go down, it could be that investors are saying, 'Okay, America no longer is the most attractive place in the world to invest.' And then you would expect to see bond yields go up. Now, it also could be inflation, and that’s why this matters a lot to the Fed. I’m not seeing evidence yet that long-run inflation expectations are climbing, and it’s the Fed’s job to make sure that that doesn’t happen. But I would expect to see, if investors decide, 'Hey, we want to invest elsewhere, all else equal,' that ought to be pushing up yields and you’d see that in what we call the term premium."