① On Sunday, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, stated that inflation across "all sectors" of the U.S. economy remains too high, and that inflationary pressures are not limited to rising oil prices; ② Kashkari's concerns about inflation largely echo those expressed by Federal Reserve Chair Kevin Warsh following the Fed's most recent policy meeting last Wednesday.
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Sunday that inflation across "all sectors" of the U.S. economy remains too high, and that inflationary pressures are not limited to rising oil prices.
"Therefore, even if we strip out highly volatile energy and food—though they are essential—the inflation outlook remains too high," Kashkari said on a program.
Last week, the Federal Reserve voted unanimously to raise interest rates by 25 basis points, lifting the policy rate range to 3.75%–4.00%. At the previous meeting, a majority of Federal Open Market Committee members opted to keep rates unchanged, with only three officials—including Neel Kashkari—advocating a rate hike.
The "dot plot" released alongside the rate hike decision indicates that, with the exception of two Federal Reserve policymakers, all others expect at least one additional 25-basis-point rate increase this year.
The interest-rate futures market indicates that, by the end of 2026, there is a two-thirds probability that the Federal Reserve's policy rate will be in the 4.00% to 4.25% range, and it is highly likely to rise by at least another 25 basis points before mid-2027.
Kashkari stated that the Federal Reserve's mandate is to bring inflation back to the central bank's 2% target, and that interest-rate policy is powerless to either open the Strait of Hormuz or lower oil prices.
"Americans are feeling inflation every day, and it goes far beyond oil prices. It is pervasive across all sectors of the economy—for example, in the service sector. That's why we have the tools to bring it back down," Kashkari said. "We hope to receive some support from other branches of government or from other parts of the real economy."
Kashkari also stated that, despite tariffs, the trade war, and the conflicts in Ukraine and Iran, U.S. economic growth has remained "very resilient."
"Nevertheless, the U.S. economy has been growing at a solid pace, and productivity is showing some signs of improvement. Accordingly, my hope is that, as some of these tensions gradually ease, growth will take center stage and, in turn, help bring inflation down. If inflation can indeed decelerate and remain on a downward trajectory, it will make the Federal Reserve's job considerably easier," he said.
Hawks are increasingly vocal at the Federal Reserve.
Kashkari's inflation concerns largely echo those expressed by Federal Reserve Chair Kevin Warsh following the most recent policy meeting last Wednesday. At the time, Warsh noted that prices across too many categories had risen by more than 3% over both six- and twelve-month periods.
Wash estimates that, based on the measure the Federal Reserve uses to target 2% inflation, August's inflation rate may have been around 3.6%. This figure will not be officially released until later this month.
Meanwhile, Jeff Schmid, president of the Kansas City Fed, also voiced his support for last week's rate hike, deeming it a necessary measure to curb high inflation, as the underlying drivers extend beyond rising oil prices.
Schmidt stated that even after stripping out energy, inflation "has remained excessively high." He also noted that "a broad range of goods and services" have experienced price increases that run counter to the Federal Reserve's price-stability mandate.
"The Federal Reserve still has work to do on inflation, and this week's actions represent a step in that direction," Schmid said at an event last Friday. "Rising oil prices have been a major driver of persistently high inflation, but it's important to recognize that our inflationary challenges extend far beyond energy."
According to CME's "FedWatch," the probability that the Federal Reserve will hold its policy rate steady at 3.75%–4.00% at its October meeting stands at 43.5%, while the likelihood of a 25-basis-point hike is 56.5%. By December, the odds of the Fed keeping rates unchanged in the 3.75%–4.00% range are 10.2%, with a 46.6% chance of a cumulative 25-basis-point increase and a 33.3% chance of a cumulative 50-basis-point rise.
Following the Federal Reserve's "hawkish rate hike" last Wednesday, Goldman Sachs swiftly revised its interest-rate path forecast. The firm now expects the Fed to raise rates by another 25 basis points at its October policy meeting, abandoning its earlier prediction of a "one-time rate hike." Meanwhile, among Wall Street's major investment banks, Bank of America also anticipates that the Fed will hike rates in October.
Editor/rice