Minneapolis Federal Reserve President Neel Kashkari said Friday he has changed his outlook and now expects that one interest rate increase will be necessary this year.
In remarks just over a week after the Federal Open Market Committee voted to hold its benchmark rate steady, Kashkari said he sees a hike as likely this year as the economy continues to feel the hit from spiking inflation tied to fighting in the Middle East.
“In March, I had penciled in one rate cut by the end of the year. In June, I’ve changed that to one rate hike by the end of the year,” the policymaker said during a panel discussion at the Aspen Ideas Festival. “It’s a pencil, and so we’re going to have to see how the data comes in.”
A Commerce Department earlier this showed that the headline inflation rate as gauged by the Fed’s preferred measure rose to 4.1%, the highest since April 2023. Stripping out food and energy costs, core inflation was at 3.4%, also marking a high since October 2023.
Inflation has been higher than the Fed’s 2% goal for five years.
Kashkari said his approach to rates has shifted as he remains skeptical that the energy price-induced cost surges will abate soon.
“I don’t trust Iran to honor whatever agreement has been made,” he said. “There’s some evidence of overnight that they’re already reneging on it, so I certainly am not seeing all clear coming out of the Middle East, and that makes me cautious about feeling too good that the worst is behind us.”
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