Minneapolis Fed President Kashkari: Inflation Is More Than Just Oil Prices
Minneapolis Fed President Neel Kashkari stated in an interview on Fox News' "Sunday Futures" that the Fed's task is to bring inflation back to the 2% target. Current inflation levels remain too high, and even excluding energy prices, inflation is still widespread across various sectors of the economy.
Kashkari specifically pointed out that even without energy prices, inflation remains elevated, particularly in the service sector, where it is "quite widespread". He distinguished this statement from the recent rise in oil prices due to the situation in the Middle East, emphasizing that the current inflationary pressures cannot simply be attributed to fluctuations in energy prices.
Kashkari supported the Fed's previous unanimous decision to raise rates by 25 basis points, increasing the federal funds rate range to 3.75% to 4.00%. Notably, at a prior meeting, when the majority of FOMC members chose to keep rates unchanged, Kashkari was one of the few dissenters advocating for a rate hike. This unanimous increase indicates a shift in the committee's stance towards his position.
Fed Chair Kevin Warsh recently disclosed that, according to the Fed's preferred inflation measure, the inflation rate in August was approximately 3.6%, stating that "too many component price increases still exceed 3%". This data corroborates Kashkari's remarks, showing that inflationary stickiness is not limited to energy categories.
In a previous dissenting statement, Kashkari attributed the persistent inflation, which has remained above the 2% target for over five years, to supply chain disruptions during the COVID-19 pandemic, the Russia-Ukraine conflict, trade wars, and recent tensions in Iran. He specifically mentioned the impact of investment demand for AI data centers on overall price levels and compared the current situation to the stagflation experience of the 1970s, noting that policymakers ultimately determined that even if inflation was driven by supply shocks, tightening monetary policy remained a necessary choice.
From a policy and market linkage perspective, Kashkari's statements reinforce market expectations for the Fed to maintain a hawkish stance. If inflation is deemed to be widespread in non-energy categories such as services, the Fed will be more cautious in its pace of rate cuts, potentially keeping short-term rates elevated for a longer period. This exerts pressure on sectors reliant on low-rate financing, while benefiting money market funds and cash asset holders seeking higher short-term yields. The market is currently adjusting its pricing for the likelihood of rate cuts at the next meeting based on the hawkish or dovish statements from Fed officials.
Kashkari himself compared the current economic situation to the 1970s, believing that the unemployment rate is lower and overall inflation levels are far below those of that era. However, he still advocates for "gradually tightening policy as data accumulates", rather than waiting until issues accumulate to the point where more drastic actions are necessary.
Source: Public Information
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Kashkari has consistently maintained a hawkish stance on monetary policy, as evidenced by his dissenting vote for a rate hike during the FOMC meeting on July 31, when the majority chose to keep rates unchanged. This is not the first time he has taken a more aggressive position on inflation than the majority, as he has long linked the current inflation environment to supply chain shocks and geopolitical conflicts, frequently citing the lessons of 1970s stagflation to justify his hawkish stance.
From the perspective of policy tools and funding pathways, the Fed has chosen to suppress demand with persistently high federal funds rates (currently raised to a range of 3.75% to 4.00%), which directly affects short-term financing costs. The yields on money market funds and bank deposit products remain high, while long-duration assets such as real estate and growth-oriented tech stocks that rely on low-cost leverage continue to face pressure. Kashkari specifically pointed out that the massive capital expenditures for AI data centers are a new variable pushing up inflation and real interest rates, indicating that the AI infrastructure investment boom is simultaneously impacting its financing environment, with capital flowing into data center construction while the Fed uses high rates to counteract the price pressures it creates.
The most direct historical analogy is the stagflation debate of the 1970s, when policymakers initially attributed inflation to supply shocks and believed monetary policy could not directly address the issue, yet ultimately chose a tightening path. By actively referencing this history, Kashkari is preemptively explaining to the market that even if current inflation partially stems from supply chain and geopolitical factors, the Fed will not relax its policy. In terms of industry positioning, the Fed is currently in a "data-dependent gradual tightening" phase, not waging a quick battle against inflation, but adjusting based on monthly data.
Essentially, this reflects a policy shift—the balance of hawkish and dovish forces within the Fed is undergoing a structural change. Previously, the majority of FOMC members tended to remain inactive, and Kashkari's rate hike advocacy was once a minority opinion. The unanimous decision to raise rates now indicates that the committee's overall stance has shifted from "observing whether inflation naturally declines" to "actively confirming that inflation is sticky and requires sustained pressure". This shift has occurred because core inflation indicators (such as the approximately 3.6% reading disclosed by Warsh for August) continue to confirm price stickiness in the service sector, and supply-side explanations can no longer provide sufficient policy cover for inaction, pushing the committee from a dovish consensus towards a hawkish consensus.