Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, has indicated a shift in his outlook for interest rates this year, now forecasting one rate increase, according to the central bank's latest economic projections released earlier this month. This change is attributed to signs of inflation becoming more widespread.
Previously in March, Kashkari had anticipated one rate cut for the year, but he has now revised that expectation to a single hike. He emphasized that the final decision will remain dependent on incoming economic data.
In an interview on Friday, Kashkari expressed his concerns, stating that his worry about inflation is not solely related to developments in the Middle East. He pointed to more broad-based inflationary pressures emerging across the overall economy.
Later the same day, during a forum, Kashkari reiterated the Federal Reserve's commitment to bringing inflation back down to its target. He acknowledged the challenge lies in achieving this within a reasonable timeframe without causing significant damage to the labor market, a problem the central bank is actively working to solve.
He also noted that the fight against inflation has been complicated by a series of supply shocks. These include the impact of the war launched by the US against Iran this year. Furthermore, the massive construction of data centers to meet the rapid development demands of the artificial intelligence industry is undoubtedly putting upward pressure on prices in certain sectors of the economy.
Earlier this year, after nearly stalling in 2025, US inflation showed signs of cooling again, but it has rebounded noticeably over the past three months. While the war involving Iran has pushed up oil prices, prices for a range of goods and service categories have also risen simultaneously.
This trend has heightened concerns among some Federal Reserve officials. They believe inflationary pressures are becoming more broad-based and persistent, potentially necessitating more forceful policy action from the central bank to curb price increases.
This week, the Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, showed a 4.1% year-over-year increase through May, marking the highest level since April 2023. The US inflation rate has now remained above the Fed's 2% target for over five consecutive years.
According to the economic projections, or dot plot, released after last week's policy meeting, nine out of the nineteen Federal Reserve policymakers anticipate at least one rate hike this year.
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