#KashkariSaysInflationStillTooHigh

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Kashkari Just Told Markets Something More Important Than the Word "Inflation"

Minneapolis Fed President Neel Kashkari went on Fox News over the weekend and made a point that's worth sitting with carefully. He said that even if you strip out energy entirely, since it's genuinely volatile, and strip out food too, inflation across the rest of the US economy is still running too high. That's a meaningfully different claim than "oil prices are pushing inflation up," and it changes how you should think about what happens next.

Why stripping out energy actually matters here

There's an oil price shock happening right now tied to the widening Middle East conflict, tanker attacks in the Strait of Hormuz and Saudi Arabia's pipeline closures. Kashkari was direct that the Fed's tools can't fix that specific problem, he said flatly there's nothing interest rates can do to reopen the Strait of Hormuz or bring oil prices down on their own. What the Fed can actually influence is everything else, and his point was that "everything else" is still running hot even before you factor in what oil is doing to headline numbers. That's the part that should worry anyone hoping this is a temporary, energy-driven spike that fades on its own.

He backed last week's unanimous vote to hike 25 basis points to 3.75-4.00 percent, and it's worth knowing he was one of three officials who'd actually dissented at the prior meeting in favor of hiking when the majority chose to hold. So this isn't someone suddenly turning hawkish, it's someone whose hawkish lean has now become the consensus view within the committee. Fed Chair Kevin Warsh separately estimated the Fed's preferred inflation gauge sat around 3.6 percent in August, and noted too many categories are still posting increases above 3 percent on both six-month and twelve-month timeframes.

What the rate futures market is actually pricing right now

According to current rate futures, there's roughly a two-in-three chance the Fed's policy rate ends 2026 somewhere in the 4.00 to 4.25 percent range, with a strong likelihood of at least one more quarter-point move by mid-2027. Projections released alongside last week's hike showed all but two Fed policymakers expect at least one more 25 basis point increase before year end. Whatever the exact specific October probability figure circulating, the broader signal here is consistent, markets and the Fed's own committee are both leaning toward more tightening, not less, and Kashkari's comments this weekend reinforce that read rather than pushing back against it.

Why this matters for gold specifically

Persistent, broad-based inflation that isn't just an energy story typically keeps real interest rates elevated, and elevated real rates are structurally unfriendly for gold, since it's a non-yielding asset competing against instruments that are actually paying more the longer this tightening continues. But there's a genuine tension worth understanding here, if the market starts treating inflation as truly sticky and structural rather than temporary, that can also increase uncertainty about how this all resolves, and gold has historically found support during periods of genuine rate-path uncertainty even when real yields are working against it. The cleaner read right now is that Kashkari's comments lean toward continued dollar strength and pressure on gold in the near term, but that could shift quickly if growth concerns start creeping into the conversation alongside the inflation worries.

Why this matters for currency pairs

The mechanical relationship here is straightforward. When the Fed signals it's staying restrictive for longer, capital tends to flow toward the currency offering higher yields, which is the dollar. That's part of why GBP/USD has been testing lower levels, with sterling giving up ground as dollar strength builds on renewed hawkish expectations. The same logic applies to USD/CHF, where the dollar has been bouncing back after a couple of softer days, trading in a way that reflects money moving toward higher US rates relative to the lower-yielding Swiss franc. Central bank divergence, one bank clearly restrictive while others hold steady or lean softer, is one of the more reliable structural drivers in FX, and right now the Fed looks like the more hawkish side of several of these pairings.

What I'd actually watch from here

The upcoming official PCE inflation release, which Warsh already previewed at around 3.6 percent for August, will be the next real test of whether Kashkari's broad-based inflation concern shows up clearly in the actual data or whether it's more of a qualitative read on where things are heading. Beyond that, watching whether more Fed officials echo this same "it's not just oil" framing in upcoming public comments would tell you whether this is becoming a unified committee message or just one hawkish voice among several. For FX and gold traders specifically, the "why" behind these moves genuinely matters more than chasing whatever level looks technically interesting in the moment, since a shift in how the market reads the Fed's reaction function can reprice these pairs quickly regardless of where price happens to be sitting technically.

Not financial advice. Always do your own research before making any trading or investment decision.

Here is the question for discussion: does Kashkari explicitly separating inflation from the current oil shock change how you're thinking about the Fed's path from here, or do you think the market was already pricing in this kind of broad-based tightening stance before he said it out loud?