Minneapolis Fed President Kashkari flipped to a rate hike forecast for this year, citing sticky inflation and Middle East risks. The shift changes the FOMC outlook after the June hold.
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Minneapolis Federal Reserve President Neel Kashkari said Friday he now expects the central bank to raise interest rates once this year, reversing his earlier forecast for a cut. The policymaker spoke just over a week after the Federal Open Market Committee voted to hold its benchmark rate steady.
Inflation remains stubbornly above the Fed's 2% target. The Commerce Department reported this week that the Fed's preferred inflation gauge hit 4.1% in June, the highest since April 2023. Core inflation, excluding food and energy, stood at 3.4%. Price growth has exceeded the Fed's goal for five years.
"In March I had penciled in one rate cut by the end of the year. In June I've changed that to one rate hike by the end of the year," Kashkari said during a panel at the Aspen Ideas Festival. "It's a pencil, and so we're going to have to see how the data comes in."
The president of the Minneapolis Fed cited supply-side pressures driving inflation. Tariffs are pushing up the price of imported goods. Energy disruptions in the Strait of Hormuz have lifted fertilizer and oil costs. And massive investment in data centers is creating price spikes in related sectors. "Anything that touches those sectors, the prices are skyrocketing," he said.
Kashkari also expressed skepticism about stability in the Middle East. President Donald Trump accused Iran of violating a ceasefire agreement, and Kashkari said he does not trust Iran to honor any deal. "That makes me cautious about feeling too good that the worst is behind us," he added.
Other Fed officials have offered a more mixed picture. New York Fed President John Williams said Thursday he expects inflation to ease and described current policy as well-positioned. Chicago Fed President Austan Goolsbee told CNBC he remains concerned about inflation but declined to predict the rate path.
Kashkari is a voting member of the FOMC this year. His hawkish pivot moves the committee's internal consensus toward tightening, even as the majority voted to hold rates in June. The Fed's next policy statement is scheduled for late July.
"It's a pencil," Kashkari said. "We're going to have to see how the data comes."
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