Kashkari sees inflation still elevated, keeps another rate rise set for this year

The remarks carry a hawkish tone and point to a central bank that may keep borrowing costs higher for longer, a stance that tends to lift Treasury yields and the dollar while weighing on interest-rate-sensitive assets. The line that the neutral rate could be above earlier assumptions is the detail traders may weigh most heavily, because it implies the current policy setting might be less restrictive than it appears. A second hike pencilled in for 2027 also pushes out the timeline for any rate cuts. These are the views of a single official, not a committee decision, so market pricing will keep turning on inflation and jobs data and on what other Fed speakers say.

Kashkari views inflation as pinned near 3% and the economy as still resilient, which has him keeping one additional hike on the schedule for this year and a second for 2027.

Summary:

• Inflation remains elevated at roughly 3%, Kashkari said, and fresh data had not shifted his assessment.
• He has one additional rate rise set down for this year and another for 2027.
• The economy has been resilient through shocks, he said, with consumer spending holding up and jobs available for those seeking work.
• The longer the economy keeps its strength, the more he doubts how restrictive policy actually is; the neutral rate could exceed prior estimates and is probably above its longer-run level for now.
• Policymakers should neither obey markets blindly nor brush aside what they are signalling, he said.
• He is doubtful about the claim that economic performance is weak beyond the artificial intelligence sector.

Speaking on Wednesday, Kashkari said inflation continues to run too hot at about 3% and that the latest data did not alter that conclusion. He has set down one more rate increase for this year and another for 2027, adding up to two further moves split between the current year and the next.

Kashkari described the economy as durable even when hit by shocks, pointing to sustained consumer spending and employment for those who want it. He also voiced doubt about the view that the economy is struggling outside the artificial intelligence sector.

The remarks about policy tightness were the most closely watched. The longer the economy remains robust, Kashkari said, the more he questions how restrictive monetary policy is. The neutral rate — the interest rate level that neither stimulates nor restrains the economy — might be above earlier estimates, he said. He is unclear where it stands today, though it is probably elevated at least for the moment. That point carries weight because a higher neutral rate makes any given policy rate less restrictive than it would otherwise be, potentially supporting the case for more tightening. Put simply, steady growth and solid hiring may be signalling to officials that rates are not as tight as they believed.

As for markets, Kashkari argued that officials should not chase them uncritically, yet should also pay attention to what they are communicating.

These comments reflect one person's outlook and projections, not a decision by the Fed, and other policymakers may weigh the risk balance differently. The focus now shifts to forthcoming inflation and jobs figures and to additional remarks from other officials, as observers try to judge whether his case on the neutral rate picks up broader backing and how solidly the hiking path he outlined holds among committee members.