Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, has adjusted his interest rate forecast, stating that a rate hike could be warranted in 2026.
The comments, made on Friday, mark a notable shift in tone from one of the Fed’s most hawkish governors, reinforcing the possibility that the central bank may need to tighten policy further if inflation remains sticky.
US Treasury yields rose in response to the remarks, with the 10-year yield climbing as traders digested the implication that the Fed’s easing cycle may be over sooner than expected.
The 2-year yield, which is more sensitive to near-term policy expectations, also moved higher, reflecting a repricing of the probability of a December rate increase.
The dollar strengthened against a basket of major currencies as the prospect of higher-for-longer rates bolstered its appeal.
Kashkari’s comments come amid a backdrop of persistent inflationary pressures, particularly linked to geopolitical tensions in the Middle East and their impact on energy prices.