Fed's Kashkari: AI is not the sole engine of US economic growth, skeptical of claims that "the rest of the economy is shrinking"

Minneapolis Fed President Neel Kashkari said he is skeptical of the view that the US economy is shrinking and that the only support is coming from an AI-related construction boom. "I am skeptical that the rest of the economy is contracting," Kashkari said Wednesday at a Council on Foreign Relations event in New York. "If you look at corporate profits, many sectors of the economy are broadly very strong, not just those directly tied to AI buildout." The Minneapolis Fed president noted that the US unemployment rate currently stands at 4.1%, nationwide layoffs are "very low," and national unemployment claims are also "very low," though he acknowledged the housing market is under pressure. "I think many sectors of the economy are performing well. But AI is clearly a real growth engine," he said. Fed policymakers voted unanimously to raise rates by 25 basis points at their September 15-16 meeting, the first hike since 2023. According to median projections, they also support one more rate increase this year and one next year. Kashkari said his projections align with the median, but added that new data could change his outlook. He said inflation remains too high, and he hopes the Fed can curb price growth through modest adjustments. US central bank officials are increasingly concerned that inflation is not confined to categories affected by Middle East conflict or tariffs. "Energy permeates almost everything we buy," Kashkari said. "Go talk to companies. Transportation costs are rising across the economy, both because of fuel prices and because of labor supply."