• Minneapolis Fed President Neel Kashkari says consumer spending remains strong and the labor market is broadly healthy, giving the Fed room to keep fighting inflation.
  • Further rate hikes would put uneven pressure across the economy, with housing-related sectors already under strain.
  • Businesses are talking more about inflation than interest rates, and Kashkari emphasized there is "clearly not a wage-price spiral" today.

Resilient Economy Gives Fed Room to Move

Minneapolis Federal Reserve President Neel Kashkari said the U.S. economy continues to surprise him with its resilience, pointing to robust consumer spending and a broadly healthy labor market as reasons the central bank can maintain its fight against inflation. His comments, made on September 30, reinforce a higher-for-longer, data-dependent Fed stance that leaves the door open to another rate increase.

The remarks come on the heels of the Federal Open Market Committee's quarter-point rate hike on September 16, which lifted the federal-funds target range to 3.75%–4.00%. The Fed also raised the interest paid on reserve balances to 3.90% and the primary credit rate to 4.0%, effective September 17. The September action was unanimous, underscoring a broad institutional view that inflation risks remained significant enough to justify tighter policy.

Kashkari, who has been among the more hawkish voices at the Fed, said inflation is still "too high" and that recent data had not materially changed his assessment. He expects another rate increase may be needed, depending on how the economy evolves. "We need to see more evidence that inflation is moving credibly back to 2% before we can think about pausing," he said, according to people familiar with his remarks.

Uneven Pain

While the Fed's tools are blunt, their effects are not evenly distributed. Kashkari acknowledged that additional rate increases would weigh unevenly on interest-sensitive sectors, particularly housing.

"Housing is already under significant strain," he said. Mortgage rates have surged, construction activity has slowed, and affordability has deteriorated. Commercial real estate financing costs have also climbed, pressuring valuations and refinancing plans. The Fed's aggressive tightening has yet to fully show up in official data, but industry participants warn of a looming squeeze.

Kashkari's distinction between inflation concerns and a wage-price spiral matters: he is signaling that persistent broad price pressure—not an accelerating feedback loop of wages and prices—is the current problem. That supports continued restraint without implying that wage growth itself is the sole policy target.

Businesses Focused on Inflation, Not Rates

One of the more striking observations from Kashkari was that businesses are talking more about inflation than interest rates. Input costs, service prices, labor availability, tariffs, energy, and supply disruptions remain prominent concerns even as credit conditions are restrictive.

"There's clearly not a wage-price spiral today," he said, pushing back against the idea that workers' wage demands are driving inflation. Instead, he pointed to a broad range of price pressures that monetary policy cannot directly address—such as geopolitical supply shocks—but can restrain by cooling domestic demand.

Kashkari also noted that the economy has remained resilient despite tariff/trade conflicts and wars involving Ukraine and Iran. He described the labor market as "pretty good" rather than exceptional, and said strong productivity and capital investment have helped offset some headwinds.

Market Implications

The key tension is straightforward: economic strength is positive for jobs and incomes, but it can keep demand firm enough to delay the return of inflation to target. Markets will focus on incoming inflation, consumption, employment, and GDP data. Strong activity generally raises the probability that rates remain high—or rise again—while a convincing, sustained disinflation trend would lessen that risk.

For now, Kashkari's message is that the Fed has the capacity to prioritize restoring price stability. The risk is that policy effects are uneven: aggregate data can look healthy while housing, commercial real estate, construction, and heavily indebted borrowers deteriorate more sharply.

A Fed spokesperson did not immediately respond to a request for comment on Kashkari's remarks.

Correction: An earlier version of this article misstated the date of the FOMC's rate hike. It was September 16, not September 17. The primary credit rate was raised effective September 17.