Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Friday that he expects the central bank will need to implement one interest-rate hike this year.
In remarks during a panel at the Aspen Ideas Festival, Kashkari confirmed that he was one of nine policymakers who anticipate the Fed will need to raise interest rates by the end of the year. Specifically, Kashkari said he penciled in one rate hike in latest economic projections issued by the Fed last week. Kashkari is a voting member of the rate-setting Federal Open Market Committee.
That marked a shift from his previous forecast. At the Fed's March policy meeting, Kashkari forecast one rate cut by the end of the year.
During Friday's panel, Kashkari said he believes inflation will remain elevated through the end of the year due to a variety of factors, including the effects of the ongoing conflict in the Middle East. Kashkari said he's not convinced the effects of the latest oil shock are totally over.
"I don't trust Iran to honor whatever agreement has been made. There's some evidence overnight that they're already reneging on it. So I certainly am not seeing the 'all-clear' coming out of the Middle East, and that makes me cautious about feeling too good that the worst is behind us," Kashkari said.
He cautioned that his forecast depends on the data and could shift.
"It's a pencil, and so you know, we're going to have to see how the data comes in," he added.
Kashkari has emerged as a more hawkish member of the FOMC in recent months. He was one of three policymakers, along with Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan, who dissented in April, objecting to the language of the FOMC policy statement that indicated an easing bias.
But given his previous warnings on the potential inflationary pressures in the pipeline, it was a bit surprising that Kashkari didn't forecast more hikes. According to the individual estimates entered as "dots" on the Fed's latest so-called dot plot tool in the June projections, three officials had penciled in one hike by the end of the year. Five policymakers predicted two hikes and one member saw a full three increases on the agenda this year.
There were eight policymakers who forecast no change, and only a single official projecting a quarter-percentage point cut. Warsh declined to provide his projection for interest rates.
"I think inflation has been too high for five years," Kashkari said. "We need to get it back down, and I know we're committed to getting it back down."
The aspect that he says he wrestles with is how much higher rates would harm the economy. He said he is concerned about how officials get inflation back down to the Fed's 2% target in a reasonable period of time without doing a lot of damage.
Higher rates would increase borrowing costs, which would likely increase the burden on lower- and middle-income households already struggling with stronger price growth. Additionally, rate hikes could dampen hiring because businesses may not have as much access to easy credit.
During Friday's panel, Kashkari said he sees supply dynamics driving the current inflationary surge. Those supply-side pressures are broad-based, including tariffs pushing up the price of goods to higher fertilizer and oil prices because of the Strait of Hormuz bottlenecks. But inflation is also being driven by massive investment in the buildout of data centers and all of the associated infrastructure that goes with artificial intelligence, Kashkari says.
One factor that is not pushing up on inflation, however, is wages.
"Labor is not what's driving the inflation. Wages have not kept up recently with inflation," Kashkari said. But eventually, wages will have to catch up. Workers will eventually demand that they make enough to meet their basic needs.
"Even if these supply dynamics fade, I would expect wages to continue climbing to enable workers to slowly catch up. So that may not be putting pressure on inflation going forward, but it may cause inflation to fall a little less quickly than it otherwise would," he added.
All of that comes as labor conditions are stable. Kashkari categorized the labor market as decent, but mostly moving sideways.
"It's kind of a treading water labor market, so it's not in a bad place, but it's not in a great place either," he said.
The stable labor conditions, however, do allow policymakers to focus on the task of bringing inflation sustainably down. And Kashkari pointed out that consumers' frustration with high inflation is not a uniquely American phenomenon. He's heard from his counterparts in Europe and elsewhere that it's fairly universal: people hate high inflation.
"We've been dealing with it now for five plus years and it's still too high, and every time people go to the grocery store, they feel like they are falling further and further behind," Kashkari said.
Write to Megan Leonhardt at megan.leonhardt@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 26, 2026 13:06 ET (17:06 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments