Fed’s Kashkari Warns of a ‘Series’ of Rate Hikes

Minneapolis Fed President Neel Kashkari was one of the four policymakers to dissent at this week’s meeting. While Kashkari supported maintaining rates, he dissented because of the central bank’s bias toward easing.

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Kashkari sees two main scenarios for how the U.S.-Iran war plays out. The more damaging scenario involves a long-term closure of the Strait of Hormuz and additional damage to energy infrastructure in the Middle East. In this case, a “series” of rate hikes could be on the table, “even at the risk of further weakness to the labor market,” said Kashkari.

Fed Policy Hinges on War’s Economic Impact, Kashkari Says

Kashkari’s other scenario involves a “fairly quick reopening” of Hormuz, which he believes is the base case priced in by oil futures. In this scenario, oil would drop to $88 by year-end, while Personal Consumption Expenditures (PCE) inflation would average 3% this year. This would prompt the Fed to hold rates “for an extended” period of time, followed by gradual easing when inflation falls.

Kashkari ultimately believes the central bank should provide a policy outlook that signals either a rate cut or a hike based on how the economy reacts to the effects of the war.