Fed's Kashkari Shifts View, Now Sees One Rate Hike in 2025
Minneapolis Fed President Neel Kashkari now projects one interest-rate hike this year, citing U.S.-Iran deal uncertainty and AI investment pressures.
Minneapolis Federal Reserve President Neel Kashkari signaled a hawkish turn Monday, projecting one interest-rate increase before the end of 2025 — a notable shift from prior guidance that had leaned toward holding rates steady. Two specific concerns drove his updated outlook: mounting doubts about the durability of the U.S.-Iran peace deal and the accelerating buildup of artificial intelligence infrastructure across the economy.
Kashkari identified geopolitical uncertainty surrounding the U.S.-Iran agreement as a key inflationary wildcard. If the deal unravels, energy markets could tighten sharply, pushing prices higher and forcing the Fed's hand on rates. The Minneapolis Fed chief made clear that this scenario, while not his base case, is credible enough to keep a rate hike on the table.
Read more Core PCE Inflation Hits 3.4% in May, Highest Since Oct 2023 →
On the AI front, Kashkari pointed to the massive capital expenditures flowing into data centers, chips, and related infrastructure as a potential demand-side driver of inflation. Unlike productivity-boosting investments that cool price pressures over time, the near-term spending surge could overheat certain sectors of the economy before the efficiency gains materialize — a timing mismatch that complicates the Fed's calculus.
The comments underscore a broader tension inside the Federal Reserve as policymakers weigh resilient economic data against elevated uncertainty on multiple fronts. Kashkari's projection does not represent official FOMC policy, but his public shift adds to signals that the committee's next move may not be the rate cut that markets had widely anticipated heading into the second half of the year.
Continue reading at MarketWatch.com
