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Minneapolis Fed President Kashkari Changes Rate Outlook to Expect One Hike in 2026

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Minneapolis Fed President Kashkari Shifts Stance: Now Expects a Rate Hike

Key Shift: Neel Kashkari now predicts one interest rate increase by the end of the year, reversing his previous expectation of a rate cut.

The Change in Forecast

Minneapolis Federal Reserve President Neel Kashkari delivered a notable policy pivot on Friday during a panel discussion at the Aspen Ideas Festival. He now expects one interest rate increase by the end of the year, a significant departure from his earlier projection of one rate cut.

"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."
— Neel Kashkari

Kashkari emphasized that this forecast remains tentative, stating, "It's a pencil, and so we're going to have to see how the data comes in."

Inflation Drivers

Kashkari pointed to persistent inflation driven by supply-side dynamics, including:

  • Energy prices and ongoing tensions in the Middle East
  • Tariffs pushing up the price of goods
  • Massive investment into data centers

He expressed skepticism that energy price-induced cost surges would abate soon. Referencing President Trump's statement that Iran violated a ceasefire agreement, Kashkari noted, "I don't trust Iran to honor whatever agreement has been made."

He elaborated that inflation is being driven by multiple supply factors: "whether it's tariffs pushing up the price of goods... it's the fertilizer that's been disrupted because of the Strait of Hormuz and energy and oil prices... then it's also being driven by massive investment... into data centers."

Broader Economic Context

The Federal Open Market Committee voted to hold its benchmark rate steady just over a week prior. A Commerce Department report showed the headline inflation rate (PCE) rose to 4.1%, the highest since April 2023, with core inflation at 3.4%. Inflation has remained above the Fed's 2% target for five years.

Mixed Views Among Fed Officials

Other Fed officials expressed divergent opinions:

  • New York Fed President John Williams expects inflation to ease
  • Chicago Fed President Austan Goolsbee declined to speculate on rate direction