While the market remains focused on the oil price shock, Federal Reserve official Kashkari issued a broader warning: inflation across "all sectors" of the US economy remains too high, with price increases in the service sector and consumer goods being particularly stubborn, and monetary policy alone cannot solve geopolitical supply issues. Following the unanimous rate hike in September, the policy path of "higher and longer" is gradually becoming clearer, and whether there will be another tightening in October has become the core suspense for global markets.

Inflation "is not just about oil prices"—Kashkari issues a comprehensive warning.

Minneapolis Federal Reserve President Neel Kashkari stated on Sunday (September 20th) that inflation remains too high across various sectors of the U.S. economy, with price pressures extending beyond the energy sector to include services and broader consumer spending. Kashkari explicitly stated on Fox News' "Sunday Morning Futures": "Even excluding highly volatile energy prices, and equally impactful food prices—in terms of economic trends, inflation remains too high." This statement is not isolated. Federal Reserve Chairman Kevin Warsh expressed similar concerns after last week's interest rate decision meeting, noting that "whether measured in 6-month or 12-month terms, too many categories of inflation are still rising above 3%." Kansas City Federal Reserve President Jeff Schmid also publicly supported the interest rate hike decision, emphasizing that even excluding energy, inflation "has been overheated," with price increases across a wide range of goods and services contrary to the Fed's price stability goal.

Data confirms: Core inflation remains high, with the service sector facing particularly significant pressure.

The latest inflation data provides strong evidence for the concerns of Federal Reserve officials. Data released by the U.S. Commerce Department on August 26 showed that the Fed's preferred inflation gauge—the Personal Consumption Expenditures (PCE) price index—rose 3.7% year-on-year in July, unchanged from June; the core PCE price index, excluding food and energy, rose 3.3% year-on-year, also unchanged from June, both well above the Fed's 2% target. Notably, service sector prices rose 0.3% that month, becoming a significant driver of inflation. Stagnant inflation-adjusted real consumer spending further reflects the continued erosion of purchasing power by high prices. According to the Fed's latest Summary of Economic Projections (SEP), policymakers have raised their 2026 core PCE inflation forecast from 3.3% to 3.4%, and their overall PCE inflation forecast from 3.6% to 3.7%. More importantly, officials now expect overall PCE inflation to return to the 2% target until 2029, a further delay from previous expectations.

The Federal Reserve has shifted its policy: a unanimous rate hike has been implemented, establishing a "higher and longer" path.

Against this backdrop of inflation, the Federal Reserve raised the target range for the federal funds rate by 25 basis points to 3.75%–4.00% on September 16th with a unanimous vote of 12 to 0. This was the Fed's first rate hike since July 2023 and the first rate increase since Warsh became chairman. The signaling significance of this rate hike is particularly prominent. The FOMC statement removed the previous statement attributing high inflation to "supply shocks (particularly in the energy sector)," instead emphasizing that "today's policy actions will support a more timely return of inflation to the 2% target." China International Capital Corporation (CICC) interprets this change in wording as sending a clear signal: the current US economy is strong, the labor market is stable, and the main problem is excessive inflation; the Fed has both the space and the responsibility to actively address it. The dot plot shows that among the 18 officials providing interest rate forecasts, 12 expect one more 25-basis-point rate hike this year, 4 expect two more rate hikes, and no one expects a rate cut this year. The median forecast for the federal funds rate at the end of 2026 was revised upward to 4.1% from 3.8% in June, suggesting at least one more rate hike this year. Warsh himself continues to refuse to submit his personal interest rate forecasts and reiterated that he "will not provide fixed forward guidance or make any pre-commitments regarding the future path of interest rates."

The economy remains resilient: robust growth and full employment provide room for further interest rate hikes.

In the interview, Kashkari emphasized the resilience of the US economy. He stated that despite tariffs, trade wars, and conflicts in Ukraine and Iran, economic growth remains "quite strong," and productivity has shown some signs of improvement. Regarding the job market, data from the US Bureau of Labor Statistics showed that non-farm payrolls increased by 162,000 in August, and the unemployment rate remained unchanged at a low of 4.1%, with approximately 7 million people unemployed. The Federal Reserve lowered its unemployment rate forecasts for both 2026 and 2027 to 4.1% in its latest projections, a decrease of 0.2 percentage points from its previous forecast. On the economic growth front, the Federal Reserve raised its 2026 GDP growth forecast from 2.2% to 2.3%, and its 2027 forecast from 2.3% to 2.4%. Warsh stated at the press conference, "The economy is currently very resilient; consumption, capital spending, and the labor market are all performing robustly and can withstand this tightening." He added, "It's difficult to say that overall financial conditions are restrictive. Most members of the Committee agree on this, therefore we have withdrawn some of our accommodative policy."

Geopolitical risks compounded: High oil prices increase the difficulty of controlling inflation.

In an interview, Kashkari also admitted that the Federal Reserve's interest rate tools cannot solve the geopolitical conflict on the supply side. He stated that the Fed's responsibility is to bring the inflation rate back to the 2% target, and no matter what interest rate policy is adopted, it cannot force the reopening of the Strait of Hormuz or lower oil prices. "Hopefully we can get some help from other departments of the government or other sectors of the real economy," Kashkari added. In fact, the impact of the Middle East geopolitical situation on energy prices continues. On September 8, Brent crude oil closed at $99.39 per barrel, with a cumulative increase of over 9% for the month; on September 9, Brent crude oil futures once touched the $100 per barrel mark, the first time since the end of July, while US WTI crude oil futures climbed to a high of $94.78 per barrel. Oil transportation in the Strait of Hormuz has been severely disrupted, and market concerns about this key global energy route have intensified again.

Market expectations: The probability of an October rate hike has risen to 56.5%.

According to data from CME's FedWatch tool, as of September 21, the probability of the Federal Reserve maintaining interest rates at 3.75%–4.00% at its October meeting was 43.5%, while the probability of a 25 basis point rate hike rose to 56.5%. The interest rate futures market reflects a two-thirds probability that the Fed's policy rate will fall within the 4.00%–4.25% range by the end of 2026, and is highly likely to rise by at least another 25 basis points before mid-2027. Goldman Sachs has quickly adjusted its interest rate path forecast, expecting the Fed to raise rates again by 25 basis points at its October policy meeting, abandoning its previous prediction of a "one-off rate hike"; Bank of America also expects a rate hike in October.

Editor's Summary

Kashkari's latest remarks echo the Fed's September rate hike decision, jointly outlining the core contradiction in current US monetary policy: inflationary pressures have spread widely from supply-side sectors such as energy to the service sector and consumer spending, while the strong economic fundamentals provide the Fed with room and confidence to continue tightening policy. The core PCE rate has hovered around 3.3% for two consecutive months, the Fed's forecast that inflation will return to 2% by 2029 has been postponed, and the dot plot suggests there is still room for rate hikes this year—these signals indicate that the Fed's policy focus has clearly shifted to a "higher and longer" interest rate path. For investors, it is crucial to closely monitor the trend of service sector inflation, the evolution of the Middle East geopolitical situation, and the October FOMC meeting decision, as these factors will jointly determine the pace and end of this rate hike cycle.

Frequently Asked Questions

Q1: What exactly does Kashkari mean by "excessive inflation across various sectors"? Kashkari points out that inflationary pressures not only come from volatile categories such as energy and food, but have also permeated the service sector and broader consumer areas. Latest data shows that service sector prices rose 0.3% month-over-month in July, a significant driver of core inflation. Kashkari emphasizes that the inflation felt by Americans daily extends far beyond oil prices; it permeates all aspects of the economy. This means the Federal Reserve cannot simply attribute inflation to supply shocks and needs to respond proactively with monetary policy. Q2: What was the background to the Fed's September rate hike? The September rate hike was the Fed's first increase in interest rates since July 2023, raising the target range for the federal funds rate to 3.75%–4.00%, and was unanimously approved by the FOMC. Key factors triggering the rate hike included: a 2.4% year-over-year increase in core CPI in August, accelerating month-over-month; core PCE remaining at a high level of 3.3% year-over-year in July; and resilient economic growth and the job market. The Federal Reserve removed the phrase attributing inflation to an "energy supply shock" from its statement, suggesting that price pressures have spread beyond a single area and require a broader policy response. Q3: What role does Kashkari play within the Fed? Kashkari is the president of the Federal Reserve Bank of Minneapolis. At the July FOMC meeting, he was one of three officials who opposed maintaining interest rates and advocated for a rate hike. He warned at the time that waiting too long could lead to deeply entrenched inflation, ultimately forcing the Fed to take more aggressive measures. After the September rate hike, Kashkari's stance was validated, and his statements have significant implications for market expectations, especially with the October policy meeting approaching. Q4: Will the Fed continue to raise interest rates in the future? Based on current signals, further rate hikes are highly likely. The dot plot shows that 16 of the 18 officials expect at least one more rate hike this year, with the median forecast for the interest rate rising to 4.1% by the end of 2026. CME's "FedWatch" data shows that the market expects a 56.5% probability of a 25 basis point rate hike in October. Goldman Sachs and Bank of America have both adjusted their forecasts, believing the Federal Reserve will raise interest rates again in October. However, Warsh emphasized that there is no predetermined path, and subsequent decisions will depend entirely on inflation, employment, and economic data. Q5: What impact will high oil prices have on the Fed's efforts to combat inflation? The Middle East conflict caused Brent crude oil to briefly break through $100 per barrel, and energy costs are being transmitted to core inflation through multiple channels. However, Kashkari clearly stated that interest rate policy cannot force the reopening of the Strait of Hormuz or directly lower oil prices. The Fed's response logic is: even if the initial source of inflation is a supply-side shock, monetary policy still needs to actively prevent its spread to the broader price system and avoid inflation expectations becoming unanchored. Analysts at Orient Securities pointed out that the Fed judged that if it continued to wait for clearer data confirmation before acting, it might miss a relatively low-cost preventative tightening window, leading to damage to policy credibility.