Kashkari states: Inflation won't surge, but there's no room for rate cuts in January

Federal Reserve official Kashkari recently stated that he does not expect inflation to surge again and clearly indicated that there is no incentive to cut interest rates in January, suggesting rates should remain unchanged this month. This series of statements sends a clear hawkish signal, reflecting the Fed’s concerns about inflation stickiness and a cooling of recent rate cut expectations. However, against the backdrop of increasing pressure from the Trump administration on the Fed, this independent policy stance itself also faces risks.

Why Kashkari’s Hawkish Position Remains Firm

Inflation Stickiness Remains a Major Concern

Kashkari emphasized that the key judgment now is which issue the Fed should focus on: a slowing labor market or still-high, sticky inflation. His answer is very clear—inflation remains the main threat. According to the latest economic data, the November PPI annual rate surged to 3%, above the expected 2.7%, and core inflation remains stuck below 3%. These data support his view on inflation’s stickiness.

Policy Stance Has Approached Neutral

Kashkari admitted that the Fed’s current policy stance is very close to “neutral”—neither stimulating economic growth nor clearly restraining it. In this context, he believes there is no need to cut rates in January. This statement implies that even if there is room for rate cuts later, the timing will not be soon.

Economic Data Gives Him Confidence

Economic data for November shows signs of overheating. Retail sales monthly rate soared to 0.6%, exceeding expectations, indicating consumer spending remains strong. This economic resilience gives Fed officials reason to stay cautious and not rush to cut rates to stimulate.

Rising Risks of Political Interference, Fed Independence Under Test

Trump Administration’s Pressure Is Intensifying

Kashkari explicitly pointed out that Trump’s actions toward the Fed “pertain to monetary policy,” which is essentially a power struggle. Reports indicate that the Trump administration’s actions toward the Fed have increased significantly, and even the Department of Justice has led criminal investigations into Powell.

Next Chair Candidate Becomes Focus

Powell’s term will end in May 2026, and the selection of the next Fed chair has become the most urgent issue. Kashkari emphasized that whoever takes over must have credibility as the top priority. This statement is interpreted by markets as concern that the Fed’s independence could be compromised by political interference.

Markets Are Already Digesting This Risk

Whenever signals of political interference appear, market volatility tends to spike directly. This indicates investors are worried about the politicization of Fed decisions.

Impact Pathways on the Crypto Market

Rate Cut Expectations Remain Suppressed

Kashkari’s hawkish stance directly dampens market expectations for short-term rate cuts. Previously, markets bet on multiple rate cuts in 2026, but this expectation has now been significantly lowered. The decline in rate cut expectations is generally unfavorable for risk assets.

The US Dollar May Remain Strong

Against the backdrop of falling rate cut expectations, the dollar remains strong relative to other currencies, which could pressure dollar-denominated cryptocurrencies.

Political Risk Premium May Rise

If the independence of the Fed is further threatened, market confidence in the financial system could decline, potentially driving funds toward more transparent, rule-based assets—including cryptocurrencies. But this flow depends on political risks truly materializing into reality.

Key Points to Watch Moving Forward

While Kashkari has closed the door on rate cuts in January, he also left a “postscript”—“there may be room for rate cuts later this year.” This means that if inflation data shows a clear downward trend, rate cuts could still happen. However, given the current stickiness of inflation and economic data, this timing might not occur until the second half of the year.

Meanwhile, Powell’s term is about to end, and the choice of the next chair will directly influence the Fed’s future policy direction. If the new chair compromises under political pressure, it could alter market expectations regarding the Fed’s independence and policy consistency.

Summary

Kashkari’s latest statements clearly indicate that the Fed remains firm on inflation and that rate cut expectations need to wait. This serves as a warning to investors betting on rate cuts in the short term. More importantly, the Fed is facing unprecedented political pressure, and how this pressure ultimately affects monetary policy independence remains an unknown. For the crypto market, the key is to observe actual changes in the Fed’s policy stance rather than be misled by political noise.