Fed's Kashkari sees one rate hike this year, cites Iran deal doubts and AI buildup

Minneapolis Federal Reserve President Neel Kashkari has shifted his outlook, now projecting one interest-rate hike this year, a notable departure from his previously dovish stance. The change, he said, stems from growing doubts about the durability of the U.S.-Iran peace deal and the accelerating economic buildup tied to artificial intelligence investments.

For interest rate and central bank policy traders, Kashkari's pivot carries weight because it signals that even a prominent dove within the Fed sees upside risks to inflation from geopolitical and structural forces. A potential unraveling of the Iran deal could disrupt oil supply, pushing energy prices higher and feeding into broader inflation measures. Meanwhile, the AI-driven capital expenditure boom is boosting demand for equipment, data centers, and skilled labor, adding to price pressures. These factors complicate the Fed's dual mandate of price stability and maximum employment, making the path of rate cuts less certain. Traders can monitor real-time rate expectations on NowPrice to gauge how markets are pricing the probability of a hike.

Looking ahead, the key data points to watch include upcoming CPI and PCE inflation readings, as well as employment reports that could confirm or temper the AI-driven demand story. Additionally, any developments in U.S.-Iran negotiations or oil price movements will be critical. Kashkari's comments suggest the Fed's internal debate is shifting, and the market should prepare for a potentially more hawkish tone from other FOMC members in the weeks ahead.