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Recent reports from the Federal Reserve Bank of Minneapolis paint a gloomy picture of the Upper Midwest economy. Manufacturers said

But Neel Kashkari, the head of the Minneapolis Fed, told MPR News that business owners and bankers have “cautious optimism” for the year ahead. 

“The economy's done pretty well,” he said. “If you look at the last couple of years, there have been a lot of expectations, including by us at the Federal Reserve, that the economy would slow down a lot, but the economy has continued to surprise. It continued to show a lot of resilience, even in the face of some big changes.”

Kashkari made his remarks earlier this week, before the 

latest data release showing U.S. gross domestic product 

still grew during the fourth quarter of last year but came in lower than expected at an annual growth rate of 1.4 percent.

Kashkari said the Trump Administration’s tariffs —

of which have just been struck down by the Supreme Court — have been one of the biggest drags on the regional economy, particularly for the manufacturing and agricultural sectors. 

But strength in other sectors, such as data centers, has continued to grow the economy.

“If you look at the huge data center explosion that's taking place around the country,

, feeding those data centers is a huge growth opportunity,” he said. “Whether you're an electrician or a construction company helping to build those data centers, there's a lot of growth opportunity there.”

Kashkari said there are also downsides to the rise of data centers, such as increased energy use driving up energy prices for consumers. Also, the surge in investment may pull money from other sectors and increase interest rates.

“Whenever there's big growth, there are some growing pains associated with that growth,” he said. “I don't want to minimize that, but I think overall, if we can boost the U.S. economy's productivity, that will be good for America long term.”

Kashkari’s take on incoming Fed chair and central bank independence

Kashkari told MPR News he likes President Donald Trump’s pick for chair of the Federal Reserve. Trump nominated Kevin Warsh in January to replace Jerome Powell, when Powell’s term ends in May. 

Kashkari, who oversaw the Troubled Asset Relief Program for the U.S. Treasury Department during the Great Recession, said that work put him in contact with Warsh, who was on the Federal Reserve Board of Governors at that time.  

“We worked together a little bit during the financial crisis. I think he's a very well qualified pick, and I think he'll do a good job,” Kashkari said. 

Trump picked Warsh after publicly pressuring Powell to cut interest rates. 

Kashkari, who is a voting member of the rate-setting Federal Open Market Committee this year, told the audience at a fireside chat at the Fargo Moorhead West Fargo Chamber of Commerce that the Fed will have to look at what happens with inflation and unemployment as it considers what to do next with rates.

“Ultimately, we need to see where does inflation go? Does it come all the way back down to two percent? What happens to the unemployment rate? Does it keep going up, or does it level off, or does it come back down?” he said. “That's ultimately what I think will guide our decisions going forward.”

Kashkari also took issue with recent remarks made by Kevin Hassett, director of the National Economic Council. 

A paper from the New York Federal Reserve Bank

 found that 90 percent of the tax burden from tariffs fell on U.S. companies and consumers.  Hassett, a top economic advisor to Trump, 

 “the worst paper I’ve ever seen in the history of the Federal Reserve system” and “the people associated with this paper should presumably be disciplined.”

“I think this is just another step to try to compromise the Fed's independence," Kashkari said. 

Kashkari also cited the criminal investigation into Fed Chair Jerome Powell, who has caught the president’s ire for not cutting interest rates enough. Last month, the Department of Justice served the Federal Reserve with grand jury subpoenas. 

“I know that my colleagues at the Fed and I are committed to continuing to make the best decisions we can,” Kashkari said. “We're not perfect. We don't get it all right, but we're going to do our best to make the best decisions we can based on data and analysis, and not let anything else distract us.”

Kashkari told MPR that he is still confident in the independent status of the central bank.

“Independence of the central bank is absolutely critically important for the long term competitiveness of the U.S. economy,” he said. “The good news is that most leaders on Capitol Hill, Republican and Democrat alike, agree that the Fed needs to be kept independent, and thus far, in all of its motions and opinions that it's issued, the Supreme Court of the United States seems to agree with that.”

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Neel Kashkari, head of the Federal Reserve Bank of Minneapolis, discussed the Upper Midwest economy, data centers and the central bank's independence during a wide-ranging interview with MPR and at a fireside chat with the Fargo Moorhead West Fargo Chamber of Commerce.

Minneapolis Fed President has ‘cautious optimism’ about economy, defends need for Fed independence

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