Neel Kashkari at the Minnesota Young American Leaders Program

Thank you very much.

Well, first of all, thank you for having me. It's great to be with all of you. I know some of my colleagues have been through this program in previous years and were very complimentary on the program. So I appreciate what you're doing, and it's an honor to be here with you. So the Federal Reserve is our nation's central bank, and as you said, Dan, there are 12 Federal Reserve banks around the country. That's important because that is something that makes our central bank unique. Our central bank was created in 1913, and Congress said they didn't want all of the central bank housed in the nation's capital. They wanted it distributed around the country so that all the regions of the country had a direct voice in the policy process. So there's 12 Federal Reserve banks, and then there's the Board of Governors in Washington, D.C., and together we make up the Federal Reserve System. So every six weeks, I go back to Washington, D.C. — actually more often than that, but at least every six weeks — I go back to Washington, D.C. for what are called these Federal Open Market Committee meetings, and we decide what are the interest rates that are appropriate for the U.S. economy. We're trying to balance inflation that might be too high but keeping the job market strong, and how do we balance those two things so that the economy grows kind of on an even trajectory. Well, what I'm doing in those meetings in part is talking about what's happening in our regional economy here. Now, we cannot set a different interest rate for Minnesota and for California and for New York because it's the same dollar that we all use, but we want to pick the interest rate that makes sense for the country as a whole. And part of my job is to make sure that all of you are represented in that deliberative process. So, I've got colleagues at the Minneapolis Fed. There are 1,000 of us that work there. We do a bunch of different things. We have economists who work closely with economists at the University of Minnesota to really analyze the global and national and regional economy. We have bank supervisors who go and examine banks to make sure that banks are being well-run and are protecting your deposits and that they're safe and secure. We manage cash. So if you go to your ATM and you pull cash out of your ATM, it would have started in our vault. And we have Brinks trucks that come to and from our building all day that bring currency. We examine the currency. We replace it with new currency. So there are a bunch of different functions that we do to make sure that the U.S. economy can function and that you all can go about your business so that you don't have to worry about it. But at the core, we are the nation's central bank. And we want to make sure that the economy is running on an overall even trajectory, not going into some kind of a recession or depression if we can avoid it, but also not overheating. And obviously, we had very high inflation the last several years. It's our job to get inflation back down. We've been making a lot of progress at that. We want to finish that, and we're probably going to talk about it. Tariffs and these trade uncertainties have thrown a curveball at us that we're trying to monitor very carefully.

Well, our region looks a lot like the nation as a whole, meaning our region is very diverse economically. Most major industries in the U.S. economy are represented here — commodities, manufacturing, healthcare, services, etc. So when one of those sectors is down for its own reasons, there's a good chance other sectors are going to be doing better, and that makes our regional economy more resilient, just like the national economy is very resilient overall. So that serves us very well. Coming into this year, in the early part of this year, the economy's been on very good fundamentals. The unemployment rate was still quite low historically, around a 4%, 4.2% unemployment rate. Inflation was coming down. We kept getting surprised at how strong economic growth was. So the fundamentals have been quite good the last couple years. And we've been bringing inflation back down. Not all the way where we need to get it to. We need to get it to 2%. It's running at around a 2.5% rate, but we're making progress. Now, there's big uncertainty now that's been introduced because there's global tariffs and trade wars that are going on right now. And where are these going to land? What are the net tariffs going to be when all of this is done? How long is it going to take to get there? We don't know right now. So, we talk to a lot of businesses large and small all across our region, and they're basically saying they're on hold until they get clarity. If you want to build a new factory, where do you build it? Do you build it here? Do you build it in Vietnam? Do you build it in Mexico? Do you build it in China? Well, where the tariffs between all of those countries end up settling is going to really affect the economic return on that investment that you make. And so if you don't know the answer to that, businesses are saying, 'Hey, we're just not going to make that investment right now until we get clarity.' And so there's a lot of uncertainty that we're trying to navigate. Businesses and individuals are navigating, and we as the central bank are also trying to navigate it as well. And so it's really just wait and see until we get more information.

You know, one of the most common comments that I hear from businesses all around our region is that they can't find the workers that they need. They're saying, 'We would like to invest more, we would like to expand, but we don't know how we're going to staff up this new factory or this new operation that we would like to have. And so, where are we going to find the workers?' So, a lot of them will point first to, hey, the country needs to fix its immigration system so that we can bring in the workers that we need. Whether it's workers on farms, workers in factories, workers in hospitals, workers in technology centers, all across the spectrum. That's a common refrain. By the way, I hear that from our elected leaders on both sides of the aisle, too. And I always point out to them, I say, 'You know, your counterpart on the other side of the aisle told me the exact same thing. Maybe you all ought to get together because you all seem to agree on this point.' But another piece of this, and it goes to the opportunity gaps, is a big swath of our folks who are already here are not getting access to the equal opportunities to give them the skills necessary so they could fill those jobs. And so that's the challenge that I will say back to business, which is yes, it's great that you are trying to find the workers that you need, but just to remind you — and they already know this — look in your backyard because there are a lot of folks here who, if they had the skills, would like to take the kind of jobs that you want to make available. And I'll give you an example. When I got here in 2016, a lot of businesses were saying that they can't find workers, can't find workers, and my colleagues and I at the Minneapolis Fed would go into lower-income communities and we'd find folks who say we don't have jobs or we're stuck in part-time jobs and we want full-time work. And it was curious because an hour earlier I was in a meeting with a bunch of businesses who said, 'We can't find workers.' So there were potential workers that were available, but there were bridges that needed to be built and in some cases skills that needed to be enhanced so that folks would be ready to take those jobs. And so that I think is the overarching message that I would have for Minnesota: we do have huge, huge opportunity gaps, and it starts in education. If you just look at the data, huge education disparities in the state of Minnesota. Some kids — your kids, my kids — have the fortune to go to very high-quality public schools in Minnesota, wonderful education opportunities right down the street. A lot of kids don't have that opportunity. And so for me, I would just say start there.

You know, one of the things about public service — and the Minneapolis Fed and all of the other reserve banks and the Board of Governors — these are deeply mission-driven organizations. People who choose to come there choose to come there because they believe in the public service mission. And when you are working with and leading a group of people who share the same goal, share the same mission, it's incredibly empowering because you're not fighting with each other about where we're trying to go. You might be arguing about the best way to get there, but you at least agree on the destination of where you're trying to get to. So that's very powerful. And when you're working across organizations to other organizations, I guess this is obvious: you've got to try to align with organizations that share your vision, share the goal that you're trying to get to. If you're fighting with somebody over, hey, should we go right or should we go left, you're not going to make a lot of progress. But if you can all at least agree, hey, this is where we all agree — we want to close these opportunity gaps, we want to make sure that young people in Minnesota, no matter where they grow up, get a great education — yep, we all agree on that. Great. Now, let's work together and bring the best ideas forward. And so, I just think aligning with other organizations that share your goal and share your destination is a great starting point. And if you can do that, then I think it can be incredibly powerful in making a lot of progress. Too often I see organizations fighting with each other — in the profit sector or nonprofit sector — when they're competing with each other and they've lost sight of what is this goal that we actually are trying to work towards. In the nonprofit sector, I see it a lot, and it's particularly frustrating because they all say, 'Hey, this is the goal that we're trying to get to. We're trying to serve this greater good.' But sometimes the personalities and the competitiveness gets in the way.

You know, my career journey has not at all been planned, because of the kind of random turns that I've taken along the way. What's been constant is my interest in pursuing things that I think are really important and challenging. If it's important but not challenging, let somebody else do it. If it's challenging but not important — like let's say climbing Mount Everest — that doesn't appeal to me. But if it's important and challenging, then I'm excited about that and I want to pour myself into that. And that has led me from engineering to business to the government and the Fed. Now, along the way, I've been willing to take career risks that I think many of my peers were not willing to do or were nervous to do. You know, when I was an engineer, I had done my bachelor's and master's in engineering and was working in R&D. My managers were encouraging me to get my PhD. And I talked to them, well, what about getting an MBA? Well, maybe you go part-time. And I said, 'No, if I'm going to go do this, I'm really going to go do it, and I'm going to quit my job, and I'm going to go full-throated, get a business degree, and then learn about business.' When I was at Goldman Sachs after business school, I was doing well. I'd been there for four years. There was a long story, but there was a chance to go to the U.S. government, to the Treasury Department. People around me thought I was crazy. Why would I give up my Goldman Sachs career to go work in government? That's crazy. And I said, 'No, you're crazy. You don't get it. This is a once-in-a-lifetime chance to get to learn and serve.' And so I think in some of these key moments, I was willing to take risks and willing to set aside the influence of my peers. And you know, one of the things I found throughout my career, peer influence is very powerful. And it's not just when you're a kid that that's true. Even as you get older, it continues to be true. And I was able to recognize it and say, 'Yep, I get it. All the people around me are choosing to go this one direction. That's not a dumb choice that they're making. That may be a very good choice, but I can look at that, recognize it, and say no, I'm going to nonetheless go in a different direction.' And so anyway, this is nothing profound other than willingness to take risks about things that you care about and then pursue it and then have enough confidence that you'll land on your feet if it doesn't work out.

You know, I don't view it as a threat to — I mean, it'll be a threat to individual jobs, but I don't view it as a threat to jobs as a whole. People have been forecasting the end of labor for as long as people have been forecasting. Right? When 150 years ago, the vast, vast, vast majority of Americans worked on farms, and then automation and technology came into farming. 'Oh my gosh, everybody's going to be unemployed.' No, the jobs changed and then they moved into factories. And so, now don't get me wrong, if you're one of the individuals who is getting laid off by Microsoft, this is a big deal. All right? So, I'm not dismissing that at all. But I'm saying for the U.S. economy as a whole, I'm very bullish on the competitiveness of the U.S. economy and that there's going to be a lot of jobs in the future, but the jobs are constantly going to be changing. And so I'm excited about it. You know, I ask people, how many people have used an AI tool in the last week or last day? And usually when I ask them in a big audience, almost every hand will go up. You know, I use it all the time now. I used to go to Google for search and now I go to Grok for basic questions and it gives me much more thoughtful, directed answers knowing the actual question I'm asking. And so I think it's incredibly powerful and I'm just at the tip of the iceberg of what you can do with this. So I'm excited about it. I think it is going to lead to disruption, but I think net-net it's going to be strongly positive for the U.S. economy.

You know, this is a great question and it's a complicated question that's going to take a long time to sort out. Let me give you an example why. So you framed the question correctly. Financial crisis hits in 2008. We have essentially almost like a jobless recovery for 10 years. It took 10 years for the labor market to recover after the heart attack of the financial crisis in 2008. Now in contrast, COVID hits, we also have a huge unemployment crisis, and the job market recovers in a couple years, and then all of a sudden we have a problem of high inflation. So we didn't have any inflation coming out of the financial crisis. Instead we had almost a jobless recovery, a 10-year recovery. The other side, after COVID, we had a very quick job recovery and we had very high inflation. So what could explain the two differences? Now, one was a financial crisis and one was a pandemic. So the source of the distress in the economy were fundamentally different. So that's got to be part of it. Part of it also is the government's response was so different. So coming out of the financial crisis, there was — I was in Washington at the time in the Bush administration and then the Obama administration — there was this intense, overwhelming feeling of fairness and unfairness. Meaning, hey, a bunch of bankers made loans they shouldn't have made. A bunch of homeowners bought homes they shouldn't have bought. Why am I going to bail them out? And so that view, in my view, led Congress and it led the executive branch to give relatively modest fiscal support to the economy. So some economists say because the fiscal support was modest, the recovery was slow. Fast forward to the pandemic. Nobody thought the pandemic was your fault or my fault or your fault or your fault. There was this global pandemic hitting us. It was not the American people's fault. And so because there was no sense of fairness or blame, let's err on the side of being way more generous. So in contrast, the fiscal support and the monetary support after the pandemic was much bigger than it was in '08. So some economists say, hey, in '08 we did too little support and we had a jobless recovery. In 2020, maybe we ended up doing too much support, but the benefit was we had a very quick job market recovery and yet we had very high inflation, which people were really unhappy about. And that's why I'm not punting the question. It's a complicated question that I actually think is going to take a lot of analysis over many years to figure out why were the recoveries so very different. And in an ideal world, we would have a fast job market recovery and no inflation. And we haven't figured out how to do that yet.

You know, it's another very good, very complicated question. It's almost a philosophical question, which is what leads societies to be happy. And it is unambiguously true that there has never been a better time to be poor in America than today. Unambiguously true. Being poor in America today is way better than being poor in America 30 years ago or 40 years ago or 50 years ago. And yet the gaps are bigger. And so the question is — this is a philosophical question not for a central banker but for the country — do we care more about absolute levels of health and wealth and security, or do we care more about distributions of health and wealth and security? And when I go to other countries — my wife is from the Philippines. And when I go to the Philippines, my wife's family is middle class in the Philippines. They're doing fine. But you know, one of my nieces who was 16 years old at the time, she made this observation. She said, 'You know, a lot of the angst in America is because you have it so good.' And I said, 'Wow.' Yeah, that was a pretty insightful comment for a 16-year-old girl in the Philippines on the other side of the planet. Basically, a lot of the stuff that we're screaming at each other about, most of the rest of the world will say, 'Wow, you guys are screaming about high-class problems compared to what most of the world is facing.' And so, that's why I think this is at the root of this. It's a little bit of a philosophical question. And I'm in no better place to answer that than any of you are, probably in a worse place to answer it than all of you are.

You know, it's a huge challenge. And I am concerned about it. I think in my memory it started with the financial crisis, which is people like me or my predecessors told everybody that free markets are terrific, that markets don't make mistakes, that less regulation is better, and then markets turns out can make mistakes, can sometimes make very big mistakes. And you had an '08 financial crisis where the U.S. economy was on the verge of collapse because the financial system made a bunch of bad investment decisions requiring the government to come in and bail out the banking sector. And I mean those bailouts that I led — just to be fully transparent, I'm not pointing the finger here, the finger's here — those bailouts really violated core American beliefs of fairness. You know, you take a risk, you get the reward, but if you take a risk, you bear the consequences. The problem with that is if we let that happen, then you would have been plunging the country into a depression scenario. And so I think that was the first shock of, hey, the experts told us this couldn't happen and now we're having to bail out a bunch of people who made the mess in the first place. That's deeply unfair and that makes me question experts. Then not long — in a short arc of time — we have a pandemic hit that is also nothing none of us in our lifetimes have faced anything like that before. Tremendous uncertainty about how deadly is this virus, how do you treat it, will vaccines ever be available, the shutdowns of the economy, huge anger, huge uncertainty about that. By the way, the experts got some stuff wrong. Experts do get some stuff wrong. It's the nature of things. Nobody knows all of this stuff. It's all new. And so, all of it adds to more anger and more uncertainty. And one of the frustrating parts is if you're an expert and you're wrong one time, two times, three times, people will say you know nothing, then they go to Facebook and this guy on Facebook was right one time. He happened to have been right one time. See, he knows as much as you do. And that's a very difficult thing to fix. And so it is something that I'm very concerned about. So, I think the best we can do is just be honest and transparent about what we know, what we don't know, where we're taking our best shot, and then if we need to adjust because we got something wrong, own it and say, 'Hey, we got this wrong. Here's why we got it wrong, and here's how we're going to try to do better going forward.' I wish — if you have suggestions for me on what else we could be doing, I'm all ears because it's a real challenge.

Boy, I don't have a ton of insight. I know that my impression, and we can follow back up with you when I talk to some of the experts back at the bank about how that is actually calculated. My impression is it has been updated over time because one concern that I had was, is the definition of poverty a percentile, which is, hey, there's always going to be somebody in the bottom 10 percentile. And I was so I was explained no, that is not a percentile basis, that there is some type of absolute measure of what does it cost to maintain a certain quality of living. But let us come back to you because I don't want to give you something that's totally wrong. So I will follow up with you afterwards. And my colleague is here who will help me follow up with you afterwards.