Weeeknd - Fed's Kashkari says inflation still too high across US economy, not just energy

The useful part

Rate futures suggest markets still see a tightening Fed, with roughly a two-in-three chance that the policy rate ends 2026 at 4.00% to 4.25% and a strong likelihood of at least another quarter point by mid-2027. That should keep the US dollar supported and leaves rate-sensitive assets exposed, since traders are unlikely to expect the Fed to look through the oil spike. For crude, the direct effect is limited, so prices are likely to keep following Hormuz and Saudi pipeline headlines, though higher borrowing costs colliding with an energy shock raise the risk of weaker demand over time.

How it works

• Kashkari's focus on services also means core and services inflation data may carry as much weight as oil for rate expectations.
• --- Minneapolis Fed's Kashkari argues oil is only part of the inflation problem, and that with Hormuz beyond the Fed's reach, its job is to tackle the broad price pressure that remains.
• Minneapolis Fed President Neel Kashkari said on Sunday, in a Fox News interview, that inflation is too high across the US economy, even after stripping out volatile energy and food.
• He said price pressures extend into services and broader consumption, and that there is nothing the Fed can do with interest rates to open the Strait of Hormuz or bring oil prices down, though it has tools...
• Kashkari supported last week's unanimous vote for a quarter-point hike to 3.75%-4.00%, after dissenting in favour of a hike at the previous meeting, when rates were held.

What to take from it

All but two Fed policymakers see at least one more quarter-point increase this year, and rate futures price a two-in-three chance of a 4.00% to 4.25% policy rate at the end of 2026.