Fed’s Kashkari Cautions Tariffs Emerging As Inflation Driver

Minneapolis Fed President Neel Kashkari warned on Thursday that tariffs are driving up goods inflation, complicating the central bank’s path back to its 2% target. 

Speaking at a fireside chat at Minnesota Women’s Economic Roundtable, Kashkari said inflation remains “too high,” even as the labor market shows signs of cooling and the broader economy trends toward a soft landing. “We need to watch this before we come to any firm conclusions,” he noted, highlighting the risk that trade policy could add fresh price pressures. 

Kashkari noted that other parts of the economy, such as the housing sector, are experiencing declining inflation. “This is happening as we expected. It doesn’t mean home prices are falling. This doesn’t mean rents are falling. It means the growth of rents and growth of home prices are slowing down,” he said. 

As a result, Kashkari said that average inflation is "going sideways.” He pointed out that this puts the Fed in a “tricky” situation, given its dual mandate to maintain maximum employment alongside stable prices.

“I have every reason to believe the cooling we’re seeing will probably continue,” Kashkari pointed out, but said that he doesn’t expect a recession. “Interest rates have some room to come down gradually over the next couple of years,” he added, noting that he was confident that the Fed would be able to control inflation pressures.

U.S. equities were mixed in afternoon trade on Wednesday. The SPDR S&P 500 ETF (SPY) rose 0.11%, and the Nasdaq-100 tracking Invesco QQQ Trust (QQQ) moved 0.30% higher. However, the SPDR Dow Jones Industrial Average ETF (DIA) slipped 0.50%. Retail sentiment around DIA on Stocktwits fell to ‘bearish’ from ‘neutral’ territory over the past day.

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