President & CEO of Minneapolis Federal Reserve on potential tariff impacts

(CBS, KYMA/KECY) - Neel Kashkari, President & CEO of Minneapolis Federal Reserve, spoke Margaret Brennan on Face the Nation Sunday about the potential impacts regarding tariffs.

During the interview, Brennan said soybeans are Minnesota's largest export, with a lot of them going to China, prompting her to ask Kashkari if he has a sense of "what the sustained trade war with China would cost farmers in the midsection of the country," and Kashkari said:

"I just heard from an AG Leader two days ago in Minnesota who said that even if there's a 10% tariff from China on soybeans, zero Minnesota soybeans will go to China because it's a competitive global market, it's a commodity. They will have to go someplace else. And so in many sectors, whether it's a 10% tariff or 50% or 100% tariff, it has dramatic effect on the trade flows. And so a lot of my folks that I hear from here are quite concerned about it."

Brennan and Kashkari also talked about the latter's comments in an interview with CNBC, where he said "investors may now be saying America is no longer the most attractive place in the world to invest," prompting her to ask what made Kashkari say that, to which Kashkari responded saying:

"We have to start at what causes a trade deficit. It's just economic math that if investors around the world say one country is the best place to invest, the math works out that that country will have a trade deficit. And part of how that shows up for that economy is interest rates will be lower across the economy because investors are investing and bringing their money into that economy. So now, if we're not going to have a trade deficit going forward, then investors must conclude that there are other attractive places to invest too. And as we see yields go up, we're seeing the treasury yields go up. The reason the Fed cares about this is we have to make sure that it's not inflation that's driving those yields up. It could be that investors are saying, 'Hey, there are other places we also want to invest.' That it won't just be everybody wants to pour money in America. So these are very complicated details to sort out. The Fed's job is to keep inflation under control and not let it get unanchored."

When Brennan brought up a comment made by Blackrock CEO Larry Fink, who said "the Fed might not have the ability to do any real easings," this made her ask Kashkari if that's what concerns him, but he responded saying:

"It's not a concern. It's just a recognition of the tools that we have. So we at the Fed, we can manage kind of near term ups and downs in the economy, but ultimately, where the economy settles in the long run as a result of all of these renegotiations and these new trade flows and fiscal policy, that new normal is completely out of the central bank's control. We cannot affect that. All we can do is keep inflation expectations anchored and try to manage some of the ups and downs on that journey, but that destination is up to the executive branch and Congress, not the Fed."

Later in the interview, Brennan and Kashkari talked about the odds of a recession regarding the tariffs.

The risk of a recession in the U.S. is rising following President Trump's April 2 announcement of sweeping new tariffs, according to Goldman Sachs.

In a research note on Monday, economists with the investment bank put the odds of the economy entering a recession within the next 12 months at at 45%, up from 35% in its previous forecast. Goldman cited tightening financial conditions, consumer boycotts of U.S. goods and uncertainty over the Trump administration's economic policies, saying those factors are "likely to depress capital spending" by more than the bank had previously forecast.

"The combination of larger tariffs, greater policy uncertainty, declining business and consumer confidence, and messaging from the administration indicating greater willingness to tolerate near-term economic weakness in pursuit of its policies increase downside risk," Goldman analysts said.

The bank lowered its forecast for economic growth in 2025 to 0.5%. In 2024, the nation's gross domestic product was 2.8%.

"If most of the 'reciprocal' tariff goes into place on April 9, we expect to change our forecast to a recession," Goldman analysts added.

These findings prompted Brennan to ask Kashkari if the risk is high in his estimate, to which Kashkari answered saying:

"You know it's really going to be determined by are there quick resolutions  to these trade uncertainties with our major trading partners? The faster those resolutions come, I think the more that confidence can be restored, and hopefully those odds can be brought down. But it is a serious situation if everybody gets nervous at the same time, businesses and consumers, and they all pull back at the same time that can lead to an economic downturn just by itself. Setting aside the math of what the tariffs end up doing to prices. And so there's a lot to try to unwrap right now, and we're doing our best to try to keep our arms around it."

Brennan followed up by asking if the financial markets look orderly to him at this point, and Kashkari said, "They are. I mean, obviously the market participants are trying to grasp for where is this all going to settle, and that's causing volatility as they're, as they're trying to do these assessments. So that volatility is to be expected, but markets are functioning, transactions are happening, and so I anticipate that's going to continue."

To watch more of Brennan's interview with Kashkari, click here.