Neel Kashkari Q&A at the 2026 InvestUP CEO Summit

Thank you. Nice to see you.

Thank you. Thanks Marty. Thanks Roxan. It's great to be back in the UP and actually back at this conference. I was at this conference three years ago. We were here together. I really appreciate the opportunity. You know, she mentioned that the UP is part of our district. And let me tell you what that means. The United States is divided into 12 Federal Reserve districts. Congress created the Federal Reserve in 1913 and the Minneapolis Fed covers the UP, Northwestern Wisconsin, Minnesota, North and South Dakota, and Montana. It's a very big geography. Our job is to know what's happening here in our local economy. And then I go back to Washington DC every six weeks. I was there last week for FOMC meetings, Federal Open Market Committee meetings where we set interest rates, monetary policy for the nation. Part of what I'm doing in those meetings is talking about what's happening here in our regional economy. Now, we cannot set a different interest rate for the UP and for Minnesota and for California and for Florida. It's we all use the dollar. So, it's one interest rate policy for the nation. But my job and my colleagues jobs are to make sure that this part of America is represented in that deliberative process. So conversations like this, outreach visits like I'm making today are a great way for me to hear directly from you what's happening here on the ground. Every region is a little bit different, but you can really help me make sense of what we're seeing. You know, we look at a lot of economic data on the US economy as a whole. Inflation data, GDP data, wage growth data, employment, layoffs. A lot of times that data is sending us mixed economic signals. They're very rarely all pointing in the same way, either a growing economy or a slowing economy. And so conversations like this and getting out in the communities help me make sense of those mixed economic signals that we're seeing. And so I'm thrilled to be here. Look forward to getting your questions and also hearing from you what's happening here on the ground. I'll just say last week we had an FOMC meeting and the committee voted to hold interest rates steady. Inflation, I'm going to break some news. Inflation is still too high. All right, you all know that. It's been ever-present, been too high for five years now in a row. Coming into the Iran war, I had some confidence that inflation was slowly headed back down to our 2% target. And the labor market has held up reasonably well. Nationally, there's around a 4.3% unemployment rate. It has bounced around that level for six months or so. So, it seemed like we were gently heading in the right direction. Then the Iran war happened, of course, and that sends a price shock wave around the world with oil prices, fertilizer prices, anything that comes from oil. A lot of products that we use every day come from the oil. And so now the question that we're all focused on is how long is that disruption going to last? Is the Strait of Hormuz going to open quickly? Is it going to open sometime in the future? What ultimately is the price effect? The best analogy we have for this, the most recent one is when Russia invaded Ukraine. That sent a commodity shock wave all the way around the world and we absolutely felt it here. It was one of the contributing factors why we had such high inflation a few years ago. So having now had elevated inflation for five years, I for one am very cautious about where inflation is headed. You know, it's one thing to have elevated inflation for a year and then have it come back down. Two years, have it come back down. When it's five years, maybe six years, the danger is people start to believe, well, maybe that's just the new normal. And that ends up being very problematic for our economy. And so, we cannot let elevated inflation be the new normal. We actually have to get it back down to our 2% target and make people realize that and experience it. And so, anyway, that's quickly what happened last week. I'm happy to answer more questions about that. But I look forward to the discussion. So, thanks for having me.

You know, you're inviting, we're live streaming this. You're inviting all sorts of questions to come in. So just want to warn you about that.

I would say it was mixed. I mean there's some bright spots. Sectors that are obviously exposed to the defense, the aerospace industry are going very well. The mining and minerals, there's some optimism, but there's some real challenges that they're facing as well. The overwhelming comment that I heard was one of uncertainty about the outlook. You know, tariffs have affected us. Some industries have had some benefits from it. Some industries have been hurt by it. Where are the tariffs ultimately going to settle? Now you have the shock wave coming from Iran, oil, fertilizer, petrochemicals. So the overwhelming comment that I heard, the common thread was one of uncertainty about what the next few years is going to look like. And of course, as business owners and leaders, you know, uncertainty means people tend to pull back. People tend to be cautious about making new investment decisions until they can get some clarity. And so, you know, overall, I think things are going along all right in the UP. That's what I heard this morning. But it was a wet blanket so to speak of uncertainty that people are facing right now.

Yeah. So Federal Reserve independence, let me back up for a second. Every advanced economy in the world has concluded that if they can shield the central bank from short-term political pressure so that the central bank can make the best decisions they can based on data and analysis, it leads to better outcomes for their citizens over time. That's unanimous consensus amongst every advanced economy in the world. Now being independent does not mean not being accountable. So the Federal Reserve was created by Congress. We are accountable to Congress. The chairman of the Fed reports to Congress and testifies regularly. All of the 12 Federal Reserve banks also have private sector boards of directors. So I work for a private sector board of directors of business and civic leaders from all around our region. So there are multiple layers of accountability that we have overseeing us and making sure that we are operating to the best we can. And we're not perfect, obviously. You know, inflation is too high. We were a little bit slow to react to it. But we're trying to get it back down to our target. But every government, like the elected officials, the temptation is, well, let me just try to get monetary policy to help me in the short term. And if you allow that to happen, it ends up leading to higher inflation over the long term. And that's why all the advanced economies have concluded, let's keep the central bank shielded from short-term political pressures, but maintain political accountability to the elected representatives. And that has worked in America for a long time. Obviously, in the last 18 months, there have been a lot of pressures put on the Fed. I feel pretty good about where we are. The courts have stood up and said that the Constitution and the laws are supporting Federal Reserve independence. There's some cases that are still pending. We'll see how those cases go. But so far, the courts have seemed to say yes, Federal Reserve independence is important. And on both sides of the aisle in Congress, there are many leaders on both sides of the aisle who say Federal Reserve independence is important. And so between leaders in Congress and the courts, I feel like we are on solid footing.

So if you go back and look at the data, we had a period after the financial crisis where the labor market recovered very slowly and inflation was actually too low. We have a target of 2% inflation. It was hovering around one and a half percent inflation almost for a decade. COVID hits, economy shuts down, economy starts to reopen, and I think it was in May of 2021 where inflation finally crossed 2%. So, we'd had 10 years of low inflation. Inflation finally gets back to 2% and we still have a 6% unemployment rate, which is still a pretty high unemployment rate. If I told you 2% inflation and 6% unemployment, I would say that still looks like a pretty soft economy. But then what ended up happening because of the shutdowns, supply chains all on top of each other, inflation exploded very quickly and it took us a few months to realize what was happening. And by November of that year, so that was May or June. By November of that year, we had already signaled, okay, we're ready to start raising rates again, pretty soon. So, I would say we were probably three to six months slow to react. And I wish we had moved three to six months sooner, but I'm also being honest with you, it probably wouldn't have made very much of a difference because if you look around the world where their central banks moved three to six months sooner, they had almost the exact same inflation outcomes that we had. And so, yep, we should have moved a little bit sooner, but I actually don't think it would have made much of a difference in what we all experienced just because the magnitude of the supply chain disruptions. You had the COVID shutdowns, supply chain disruptions, and then you had, as I said earlier, Russia invading Ukraine. That was January of that year. It was one after the other dominoes all pointing to high inflation. And so sometimes, you know, central banks can be powerful, but there are also some waves that hit the economy that are more powerful.

I don't see that in the foreseeable future. What determines which currency is the reserve currency? If you take all the, you first of all, you have to have a big economy as a basic. So take all the big economies in the world. Which big economy do investors around the world have the most confidence in? That's what determines who's the reserve currency. It's our economy by miles. And so the question is when will one of the other advanced economies out-compete America so that investors around the world say that's a better place to invest than America. It could happen. I don't want to say it's impossible, but man, I wouldn't trade places with China. I mean, they've got this incredible demographic cliff hammering them like a giant tractor beam that's going to pull down their economy. Europe has all sorts of their own challenges as well. We have lots of challenges, too. But I wouldn't trade places with anyone in the world by a mile, by miles. And so I actually feel very good about our competitive position. That doesn't mean we can't do better. That doesn't mean we shouldn't do better. But in terms of us losing out the global competition for economic vibrancy, I'm not going to bet against America.

So this goes back to what is our target, 2% inflation. Congress gave us two primary goals. One is stable prices. We call this our dual mandate. Stable prices we define as 2% inflation and maximum employment, as many Americans as possible gainfully employed and contributing to the economy. Now, central banks can set the inflation target. So, we could have defined stable prices as 1% inflation. We could have defined it as 3% inflation. Here's the thing. What we can convince the American people of based on your lived experiences becomes a self-fulfilling prophecy. So, we've told everybody 2% is the right number. We can talk about why we thought 2% is the right number. But if you start to believe that 3% is now the new normal, it becomes a self-fulfilling prophecy or 4% because here's how it works. If you have employees and they think, well, three or 4% inflation is now here to stay. They're going to come to you and they're going to say, I need a bigger raise. My family is falling behind. I need to be able to keep up with inflation. And they're going to be right. So, you're going to have to give them a bigger raise and then you're going to turn to your customers and you're going to say, 'I need to charge you more because my labor costs have gone up.' And then it becomes embedded in the fabric of our society. Inflation is a tax on all of us. And so, we want to keep inflation low. We want to get it to the point where nobody's thinking about it anymore. 2% inflation is kind of the rough equilibrium that most central banks have converged around as a good ballpark number that gives us some margin for error but it's low enough that people don't need to worry about it and so we need to get back down to 2%.

Well, monetary policy writ large is the tool we use to try to achieve our dual mandate goals. So this interest rate that gets a lot of attention is what's called the federal funds rate. It's an interest rate that banks charge each other on the electronic cash that they send to one another. That's one part of our toolkit. Another part of our toolkit is something we call forward guidance. Forward guidance is when we tell you, when we signal to the markets where we think interest rates are likely headed in the future. Financial markets try to be forward-looking and that can affect interest rates today. So I'll give you an example. I said to you when inflation took off in '21, we first signaled in November, hey, we're going to start raising rates soon. Even though we had not yet moved the federal funds rate until March of that year. But if you look back in November of that time frame, mortgage rates adjusted immediately. That's how forward guidance works. By signaling that rate changes are coming in the future, it can affect where rates are today. So those are two separate tools. One is what is the rate today on this interest rate that banks loan each other. The second is forward guidance. The third tool which gets a lot of attention is our balance sheet which is if we've cut rates all the way to zero, we've embarked on this thing called quantitative easing where we buy long-term treasury bonds to try to drive down long-term interest rates. So, I think of those as three discrete tools that we have. There's some interaction between them, but we don't need to get into that. But the three fundamentally discrete tools, but all of it is about shaping the cost of money and how banks borrow from each other and ultimately turn around and lend to their customers. All of you. Now, let me say one more thing. This is technical, but it's really important. There's a concept in central banking which is what is neutral? What is the neutral interest rate that neither stimulates the economy or restrains the economy? We don't set that neutral rate. We try to estimate it. And so if we see the economy is really slowing down. If this is our assessment of neutral, we'll try to bring interest rates below neutral to boost the economy. If this is our assessment of neutral and the economy looks like it's overheating with high inflation, we will tend to raise interest rates above neutral. But the thing is this neutral rate moves around. So one of the things we've seen in the last four or five years, there's been massive investment into AI and the chips and data centers. Hundreds of billions of dollars a year. Well, that capital has to come from somewhere. That capital is being reallocated from other parts of the economy to data centers. How does that happen? That happens with a higher neutral interest rate. So, I'll give you just a simple but theoretical example. Think about an apartment building that used to pencil out and get funded when it could get a 3% mortgage. Well, now Amazon, Google, Meta, they're investing hundreds of billions of dollars into data centers. So interest rates in the economy will be higher and that mortgage rate will now be 6% instead of 3%. I'm just making up the numbers. So that apartment building won't get funded now. Instead, that capital is going to get reallocated in our market economy and we're going to build data centers. So one of the things that makes it challenging for us because we don't exactly know where neutral is. We have to try to see how is the economy progressing, how is investment going, it balances savings and investment and then we try to tap the brakes or tap the gas around that neutral level. But some of these broader forces are much bigger. So in the discussion earlier today, a bunch of the panelists, a bunch of the participants were saying, 'Boy, it'd be great if interest rates were lower.' And I said, 'You know, I hear you, but it's not entirely up to us because if there's going to be massive demand for investment in this new sector of the economy, the capital has to come from somewhere. And that means some other projects that used to get funded are not going to get funded. That's how capital moves. And that mechanism is through higher interest rates.' Sorry, that was like a little econ lesson, but it's like foundational to the kind of stuff that we think about every day.

Yeah. So last week when the FOMC voted, we voted to hold interest rates steady, but there were four dissents out of 12 voters, which is the highest level of no votes in 32 years or one. One person, Governor Waller, wanted to cut interest rates immediately. Three of us, myself, President Hammack in Cleveland, and President Logan from Dallas voted no. Not because we wanted to change the interest rate today, but because in the language that we put out with the policy action, there was a signal that the next move is likely a cut. And our view was that had been appropriate for the past several months. But given the uncertainty, my view, I'm just going to speak for myself, but I think my colleagues agree with me. Given the uncertainty around the Iran war, I actually don't know what the future holds. If the Strait of Hormuz is closed for an extended period of time, it may well be that the next move might need to be up in interest rates. I just don't know. And so we voted against this, not against the rate action, we voted against the forward guidance because we just didn't want to signal that the next move was likely down. We just didn't know.

I would be surprised if the AI is a giant bubble the way the housing bubble was. I don't think AI is a dry hole that's being dug. Every big business that I talk to, every single one is using it, finding new ways of either doing things they couldn't do or doing things more efficiently that they used to do. So I think it's real. Now could there be some bad investments that are being made along the way? Absolutely. But I don't think the whole sector as a whole is just a complete bubble. So I expect there will be businesses that fail. I expect that there will be losses. History of technology adoption is one that it takes a lot longer than people think for these technologies to weave their way into the fabric of production and the fabric of the economy. So my guess is it's going to take a lot longer to have the full benefits of this technology and the full consequences of the technology, but I'm bullish on AI just because businesses that I've talked to that were skeptical two years ago are now telling me, 'No, no, no, we're using it.' And I'll say, 'Give me a specific use case.' And they can walk me through tangible use cases of how they're getting either productivity benefits or they have capabilities that they didn't have before. So I think it's real. But I'll also say, by the way, just to the example of how long these things take longer than expected. I mean, five or seven years ago, we heard all sorts of predictions about self-driving cars and trucks and that all the long haul truck drivers were going to be displaced within five years and they're going to have to go back to school and be retrained. That has not remotely happened. Allegedly, they're making progress on the technology and there are places like in Phoenix and San Francisco where you can get in a self-driving cab. So, the technology is making progress. Will it eventually get there? Probably. But it's taking much, much longer than the evangelist told us five years ago.

You know, it's a real challenge. I mean the affordability of housing is a widespread challenge all around our region. And if you look at what has caused home prices and home affordability to go up and home affordability to go down, it's a confluence of things. Some of them are in our control. Some of them are harder to control. One is of course inflation affects that cost of materials, you know, takes materials to build a structure. Material costs are going up. So that's on the Fed. We have to get inflation back down. Availability of labor, cost of labor, immigration policy affects that. That's also a challenge in some markets in particular. Then you have things like local zoning. Like the UP has a lot of vacant land. But my sense is from having been here now every couple years for the last 10 years there's still a reluctance like, oh we don't want to build over there. We don't want to build over here. Oh you can't build over there. That's beautiful. I can't build over there. Well, when everybody rules out all the places that you can't build, you're not left with very many places to build. I go to Montana, I hear this all the time. So, in Montana, Montana has a lot of land. And they always tell me how unaffordable it is to build housing. And I always say the same thing. What about there? What about there? What about there? Oh, no, no, no, no, no, no, no. And so these are choices that we're making. People who own homes, like I own my own home. My wife and I own our own home. People like me and dare I say you don't want people building more homes where we live. I'm not kidding. Because we like our neighborhoods the way they are. You live in the UP because you like the UP the way it is. And so we erect all well-intentioned local regulations making it harder to build. So part of it's the cost of materials, part of its availability and cost of labor. You got local zoning which you own. It's up to you guys, you all to choose what you want to do here. And then of course you have the cost of capital and the cost of capital is a little bit on the Fed but it's also on the broader economy as I described because capital is going to other places. So some of this stuff is our choice.

Nothing. I think crypto is like ESG for libertarians. Remember the ESG, right? It was like millennials and Gen Z wanted to feel good about their investing. So, Wall Street rolled out all these ESG products and they charged premium fees for them. And the millennials and the Gen Z's felt good about their investments. The banks felt good because they're getting premium fees. Meanwhile, they did nothing for the environment. That's basically what crypto is. It's been a dozen years now. Nobody's found any actual use case in any advanced economy for it other than circumventing banking regulations, but people like the idea that they're circumventing the regulated system. And so, Wall Street's happy to give them products. So, I mean, compare it to AI. Every day, people are finding new use cases for AI every single day. It's been a dozen years. And the use cases for this crypto stuff, it's just marketing. It's just, it's like I call it a buzzword salad. Every time I sit down with somebody in the industry and I say, 'Explain to me what can you actually do with this?' It's just a bunch of buzzwords. And then I'm like, 'Okay, it's ESG for libertarians.'

Well, it's a committee. So, first of all, I know the new incoming chairman who's about to be confirmed, Kevin Warsh. I was at the US Treasury Department during the financial crisis. He was at the Fed. He's very well-qualified. He knows the Fed very well. We're a committee that there are 12 voters at the Federal Open Market Committee and it's a deliberative process where people have to bring their best ideas forward and make their best arguments and then ultimately persuade their colleagues on the right path. The chairman is given deference. Of course, he's selected by the president, confirmed by the Senate. Deference is given to the chairman, but ultimately it's one of persuasion and analysis and arguments and data. And so, you know, we're I think we're all excited to have him join us and have him lead that deliberative process.

No one knows where the danger zone is. You know, is it 100% of GDP? Is it 110, 120? Many countries have gotten into trouble with much lower levels of debt than we have right now. And yet you've got Japan which has more than twice as much debt to GDP as we have right now. We know if you look at forecasts like the Congressional Budget Office does forecast of where our debt is going. It's going to do this. And it's going to

We do this mostly based on demographics, which is we're an aging society. We're having fewer children. So our benefit programs like Social Security, Medicare, they're funded by current workers paying for current retirees. And as that ratio goes imbalanced, the debt goes through the roof. So that can't happen. Something needs to be done to address that. And ultimately, it's up to our political system and our elected leaders in the Congress and the executive branch, the fiscal authorities to come together and decide, do they want to raise taxes? Do they want to cut benefits? Do they want to have more immigrants to kind of change that balance, that mix? Ultimately, that's for our political system to wrestle with. It's not for the Fed. So I don't have a worry about our debt in the near term, but at some point, our political system is going to need to address this.

Oh, the US. I mean we all are very aware of all of our flaws and our internal dramas and whatnot, but again I would not trade places with any other country in the world. We have so much going for us. Our university system, our rule of law, our innovation sectors that continue to outperform the world by miles. I wouldn't trade place for any other country in the world. And speaking of this country, the question asks, "How does the Fed account for the fact that 124 trillion in assets will be transferring generations over the next 20 years?"

You know, I've seen some of those articles. I don't think about it much. I mean I think that's the normal part of our economy and different generations accumulate. People tend to save more. I mean people who can tend to save more than they need as they get older. So you would expect consumption to, people to spend more as they're getting older because they're not working. But people end up saving in aggregate more than you would think. And so, I don't think that that generational shift, it isn't obvious to me that that generational shift is going to affect monetary policy somehow.

And I'm curious. I mean, so you know, I shared what I learned this morning that people are nervous about kind of the uncertainty facing the economy between tariffs and what's happening in Iran and just all of what we've been experiencing. What else would you say that businesses here are feeling that is front and center? Availability of labor came up a lot. It wasn't universal. I mean, I know this is always structurally, this region is always structurally short of workers. I heard mixed feedback about that this morning, but I'm curious what do you think is top of mind for folks?

Got it. Thank you.

Yeah. So, you know, a lot of my district is rural and different communities there. They have some common struggles. Some of the common struggles are even though they're rural districts, housing availability and affordability is a challenge for many of them. Availability of child care, affordable child care, accessibility of child care tends to be a common problem. There also tends to be declining population where young people who grow up there maybe go away to college and then the question is are they actually going to return afterwards and so what does the future of our region look like? Those are common widespread challenges that we see. I would say some communities have been more successful than others at trying to invest in some amenities so that their young people can come back and want to come back if they go away to school and come back. The availability of broadband is helping people to start businesses to be able to serve markets around the country or around the world. You also obviously have a university here which is a key economic center and a center for innovation and brings people from around the country or around the world to your part of Michigan. So I think you've got some strengths here, but these are big challenges that many communities are facing and the ones that I've seen tackle it most effectively, there's a healthy partnership between the local civic leaders like the elected leaders as well as the local business community and the local college. I think if you have those three things working hand in hand then you've got a good shot at being able to change the trajectory and not just kind of end up wherever you end up but actually shape your own destiny.