Fed’s Kashkari warns of policy dilemma amid tariff tensions and market strains

Minneapolis Fed President Neel Kashkari said overnight that it’s “too soon” to determine the future path of US interest rates. While he acknowledged that tariffs alone may not necessarily reignite persistent inflation, he emphasized that Fed cannot dismiss the risk, especially given the still-elevated price levels in recent months.

At the same time, Kashkari noted that tariffs are likely to weigh on growth, creating a policy dilemma: Fed cannot simultaneously counter rising inflation and rising unemployment without making difficult trade-offs.

Kashkari highlighted that the growing uncertainty surrounding US trade policy is compounding the challenge. While resolution could come quickly if negotiations succeed, the current lack of clarity is already deterring both consumer and business activity.

Adding to the complexity, Kashkari pointed to additional pressure from a weakening dollar and rising Treasury yields, as global investors begin to question the attractiveness of US assets.

“If we’re no longer the economy that investors around the world say, hey, this is the preeminent competitive economy,” he cautioned, “then we probably have less runway.”