Minneapolis Federal Reserve President Neel Kashkari said Thursday that he expects the central bank to raise interest rates at least once before the end of 2026, pushing back against growing market expectations that the Fed’s next move will be a cut. Speaking at an event in Minneapolis, Kashkari cited persistent inflationary pressures and a resilient labour market as justification for maintaining a restrictive policy stance well into the second half of the year.
CNBC reported the remarks under the headline “Minneapolis Fed President Neel Kashkari says he expects a rate hike this year,” noting that Kashkari’s comments represent one of the more hawkish public positions taken by a sitting Fed official in recent months. The federal funds rate currently stands in a target range of 4.50 to 4.75 percent, following a series of cuts that began in late 2024.
Kashkari acknowledged that inflation has moderated from its 2022 peak above 9 percent but argued that a core personal consumption expenditures reading still hovering near 2.8 percent — well above the Fed’s 2 percent mandate — leaves insufficient room to ease further. “We are not done,” he said, according to CNBC’s account of his remarks. “The last mile of getting inflation back to target is proving to be the hardest.” He indicated that the Fed could move as soon as September if incoming data on wages and services inflation do not show a meaningful deceleration.
The comments sent a ripple through bond markets, where traders had been pricing in roughly 50 basis points of cumulative cuts by year-end. The two-year Treasury yield, which is most sensitive to near-term Fed expectations, climbed approximately 7 basis points following the remarks, touching 4.62 percent intraday. Equity futures softened modestly, with S&P 500 contracts off around 0.3 percent. Investors who have already been navigating a choppy environment may find further pressure building: The Fiscalist previously noted the first outflow from U.S. equities since March, raising concerns about a risk-off summer ahead.
Kashkari is a voting member of the Federal Open Market Committee in 2026 and has historically occupied a hawkish position on inflation. His remarks on Thursday align with a broader pattern among some regional Fed presidents who have grown cautious about premature easing. The Minneapolis chief also flagged risks from fiscal expansion, noting that elevated federal deficits could complicate the central bank’s efforts to bring demand-side inflation under control without triggering a sharper economic slowdown.
The dollar index firmed 0.4 percent on the back of the hawkish signals, reflecting a repricing of rate differentials against major peers. Analysts at several Wall Street firms revised their Fed call following the remarks, with at least two major banks now pencilling in one additional 25 basis point hike in either September or November. For fixed-income investors reconsidering their positioning, the Fiscalist has previously explored why allocating to bond markets outside the United States may offer more attractive risk-adjusted returns in the current environment.
The next scheduled FOMC meeting is set for late July, though most analysts consider a move at that gathering unlikely given the limited amount of fresh economic data that will be available. The Fed’s preferred inflation gauge, the core PCE index, is due for its next monthly release in late July, and Kashkari indicated that report will be closely watched. Markets will also scrutinise the June jobs report, expected to show non-farm payrolls growth of around 155,000, for any signs that labour market tightness is beginning to ease.