Monetary Policy Lab • Neel Kashkari Thesis

U.S. Inflation Breadth & Fed Rate Path Analyzer

Minneapolis Fed President Neel Kashkari warned that inflation remains stubborn across the entire economy, far surpassing pump prices. Stress-test the components of the CPI/PCE basket, calculate non-energy diffusion breadth, and simulate the implied Taylor Rule policy rate.

Macro Scenarios & Presets

Basket Component Rates (YoY %)

Energy & Motor Fuels (6.8% wt) +4.5%

Food & Groceries (13.4% wt) +2.8%

Core Goods (Vehicles, Apparel) (18.7% wt) +1.2%

Shelter & Owners' Rent (36.2% wt) +5.1%

Supercore Services ex-Shelter (24.9% wt) +4.4%

Fed Policy Assumption

Neutral Real Rate (r*) 0.85%

Output Gap (GDP Slack) +0.6%

Headline CPI (YoY)

3.8%

Fed target: 2.0%

Core CPI (ex Food/Energy)

4.0%

79.8% of consumption

Diffusion Breadth Index

61.1%

% basket inflating > 3.0%

Implied Fed Funds Target

5.4%

Taylor rule reaction rate

Kashkari Core Persistence Warning: Energy contributes just 0.31 pp to headline inflation, but Shelter and Supercore Services add 3.0 pp. With 61.1% of the consumption basket running above 3%, inflation breadth prevents near-term rate cuts.

Component Contribution to Headline Percentage Points (pp)

Taylor Rule Rate Gap vs Stance Restrictive (+0.15 pp)

Basket Category	CPI Weight	Simulated YoY	Point Contribution	Breadth Stance

Macroeconomic Context & Mechanics

Why does Neel Kashkari emphasize breadth?

When politicians and consumers complain about inflation, pump prices get the headlines because they are visible daily. However, central bankers know energy is volatile and mean-reverting. If inflation spreads into services, wages, and rents, it becomes entrenched into contracts and consumer psychology, requiring sustained restrictive monetary policy.

What is "Supercore" inflation?

Supercore refers to core services excluding housing/shelter. It includes medical care, auto maintenance, legal services, dining, and hospitality. Because these industries are labor-intensive and shielded from imported goods competition, Supercore serves as the cleanest gauge of domestic wage pressures and price-setting power.

How is the Taylor Rule calculated here?

We use the standard Henderson-McKibbin Taylor specification: Target Rate = r* + π + 0.5(π − 2.0%) + 0.5(Output Gap). When core inflation persists at 4%, even an economic slowdown with a negative output gap still demands a policy rate above 5.0%.