Minneapolis Federal Reserve President Neel Kashkari projected one more interest rate increase this year and another in 2027, signaling continued hawkishness on inflation despite persistent questions about the economy's resilience.
Kashkari said inflation remains elevated at approximately three percent and recent economic data has not changed his view. The economy continues to hold up, with consumers spending and labor markets tight, he said.
More significantly, Kashkari challenged the assumption that current policy is truly restrictive. He suggested the neutral rate—the theoretical interest rate level that neither stimulates nor restrains economic activity—may be higher than the Fed previously estimated. An elevated neutral rate would mean the current policy stance is less tight than headline rates suggest, strengthening the case for further hikes if growth and hiring remain strong.
Kashkari's position has hardened since June, when he expected a rate cut before year-end. He dissented at the July Federal Open Market Committee meeting, advocating for a hike. The September rate increase aligned with his earlier call.
His hawkish stance tends to support Treasury yields and the dollar while pressuring rate-sensitive assets and extending duration risk across fixed-income portfolios.
Kashkari cautioned that policymakers should weigh market signals without following them blindly. He dismissed suggestions that the economy is performing poorly outside the artificial intelligence sector.
These are Kashkari's personal projections, not FOMC consensus. Other officials hold differing views on economic risks.
