Minneapolis Fed President Neel Kashkari warned that inflation risks are becoming increasingly concerning as the Middle East conflict continues pushing energy and supply-chain costs higher across the global economy. Speaking in Tokyo, Kashkari said “most of the data has said the inflationary risks are higher, not lower.”.
Kashkari argued that the persistence of elevated inflation over recent years is making the Fed less willing to simply dismiss the current energy shock as temporary. “We’ve had high inflation all around the world for five years now,” he said, adding that the Iran conflict is “affecting virtually every economy around the world.” He also stressed that rising energy costs are likely to spread gradually into other sectors of the economy, warning that “the inflationary shockwave” from the conflict could persist longer than markets currently expect.
Importantly, Kashkari suggested inflation concerns currently outweigh labor-market risks for policymakers. While he described the US labor market as being “in a decent place,” he said “the risk to inflation appeared to be higher than the risk of a worsening labour market.” He also warned that failing to respond appropriately to persistent inflation pressures could damage the Fed’s credibility, saying policymakers risk fueling public perceptions that the central bank is not serious about restoring price stability.
Still, Kashkari stopped short of endorsing imminent rate hikes despite growing market pricing for a possible October move. “I think it’s far too soon for me to make such a prediction,” he said when asked about hike expectations. Instead, he reiterated that the Fed should maintain “neutral guidance” signaling rates could still move either higher or lower depending on incoming data, particularly developments surrounding Iran negotiations, energy markets, and global supply-chain normalization.
