Minneapolis Fed president says price growth remains too high even as August inflation data comes in below forecast
Minneapolis Federal Reserve President Neel Kashkari held to his hawkish line, telling a Council on Foreign Relations event in New York that a cooler-than-expected August inflation reading had done little to alter his thinking on the rate path ahead.
The August personal consumption expenditures (PCE) price index — the Federal Reserve's preferred inflation measure — showed core prices rising 3% on an annual basis, coming in below economist forecasts. For Kashkari, the softer print carried limited weight.
"There are many different measures of inflation, but it's running at around a 3% rate," he said.
"It's been elevated now for more than five years. I didn't think the inflation data today really changed that story for me very much."
For mortgage brokers tracking where the rate cycle is headed, the remarks offered scant comfort. The central bank had already moved its benchmark rate higher, lifting the overnight target to between 3.75% and 4%. Kashkari indicated that September Federal Open Market Committee projections pointing to one more hike before year-end remained his working assumption.
David Russell of TradeStation says a softer-than-expected core PCE reading supports the case against an October rate hike, though recent data revisions make it difficult to assess how much of the slowdown reflects genuine disinflation.https://t.co/zAz3k1sW7M
— Mortgage Professional America Magazine (@MPAMagazineUS) September 30, 2026
Labor market holds firm
Separate ADP payroll data released Wednesday showed private employers added 90,000 jobs, more than analysts had anticipated in September. That's consistent with Kashkari's characterization of the labor market as "pretty good," though not quite "great."
Consumer spending and gross domestic product figures released the same day reinforced what he described as a "resilient" economy.
That strength undercuts any near-term argument for the Fed to ease its inflation mandate.
New York Fed President John Williams had tried to temper expectations the previous day, saying he saw no immediate urgency to tighten further after the September meeting, but Kashkari's remarks suggested he was not yet prepared to relent.
AI spending and the longer rate horizon
Kashkari also flagged a less-discussed variable shaping where rates ultimately settle: his estimate for the neutral federal funds rate has risen to 3.25%, driven partly by surging demand for investment capital linked to the artificial intelligence buildout.
If that investment delivers the productivity gains investors expect, the economy could absorb a higher neutral rate without serious damage. But Kashkari was direct about the risk.
"If this ends up being massive investment that is not nearly as productivity enhancing as we assume, then this will have been malinvestment, and then there could be big economic consequences for the economy writ large," Kashkari said.
Rising bond yields, which tend to push long-term borrowing costs higher, have also been performing some of the Fed's tightening work. The rate path remains data-dependent, and Kashkari showed no sign of stepping back from that position.
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