Kashkari says Federal Reserve still sees inflation risk

Neel Kashkari said the Federal Reserve faces inflation above its 2% target across the economy, keeping pressure on interest rates.

Kashkari backs 25 basis points

The Minneapolis Fed president supported last week's unanimous vote to lift the policy-rate range by 25 basis points to 3.75%-4.00%. At the previous meeting, Kashkari was one of three officials who favored a rate increase while most members of the Federal Open Market Committee left rates unchanged.

In a Sunday television interview, Kashkari said the price problem is not confined to energy or food, the two categories policymakers often strip out to judge the underlying trend. He said inflation remains too high even after those volatile components are removed, leaving the central bank focused on broader pressure in the services economy.

Warsh points to 3.6%

Fed Chairman Kevin Warsh made a similar case after the latest rate-setting meeting, estimating that the Fed's preferred inflation gauge was likely around 3.6% in August. The official August reading is due later this month, leaving the estimate as a marker rather than a final data point.

Warsh said too many categories were still rising above 3% on both six-month and 12-month measures, compared with the Fed's 2% target. Kashkari said the central bank has tools to lean against broad inflation, while adding that interest rates cannot reopen the Strait of Hormuz or directly lower oil prices.

Oil shock complicates rate path

Oil has returned to the policy discussion after reported disruptions around the Strait of Hormuz and Saudi Arabia's East-West pipeline. Those reports add an energy-price risk to a rate debate already shaped by tariffs, trade friction, and conflicts in Ukraine and Iran.

Kashkari said the US economy has continued to grow despite those pressures, and he pointed to early signs of better productivity. His view leaves the Fed balancing two forces: resilient demand that can sustain price pressure, and productivity gains that can help reduce inflation if they endure.

Markets price more tightening

Projections released with the rate decision showed all but two Fed policymakers expected at least one more 25-basis-point increase this year. Rate futures showed a two-in-three chance that the policy rate ends 2026 in the 4.00%-4.25% range, with a strong likelihood of another 25-basis-point rise or more by mid-2027.

If that path holds, borrowing costs would remain a restraint on households, companies, and lenders that rely on rate-sensitive demand. If inflation instead moves closer to the 2% target, the Fed would have more room to slow or pause further tightening without abandoning its inflation mandate.

Three paths for policy

If broad inflation stays above target, the global macro effect would be tighter dollar funding conditions and less room for other central banks to ease. For the Federal Reserve, that would keep the policy debate centered on additional restraint, while banks, mortgage lenders, and credit markets would face a longer period of elevated rates.

If the oil shock fades and productivity keeps improving, disinflation could proceed with less damage to growth. That scenario would ease pressure on the Fed, reduce uncertainty for rate-sensitive sectors, and give global markets a clearer path for pricing the end of the tightening cycle.

If energy disruptions deepen while services inflation remains high, the Fed would face a less favorable trade-off between headline prices and growth. The direct pressure would fall first on transport, airlines, refiners, and energy-intensive manufacturers, while the broader risk would be a longer period of restrictive US monetary policy.