Minneapolis Federal Reserve president Neel Kashkari said on Friday that he is paying close attention to the bond market and noted that he hasn’t seen evidence yet that long-run inflation expectations are climbing. The official added that if investors begin shifting capital overseas, it would push up U.S. yields, while a weakening USD may signal changing investor preferences.
Kashkari also stated the U.S. remains “quite a ways away” from facing any issues in the financial system and emphasised that the Fed cannot dictate where yields ultimately settle — only help smooth the transition. He acknowledged that tariffs place the Fed in a tough position by simultaneously driving inflation higher and slowing economic growth. According to the Minneapolis Fed's boss, even with the current pause, the U.S. tariffs remain elevated, which could raise inflation in the near term. The economic outlook, he added, will depend heavily on the pace and outcomes of tariff negotiations.
Kashkari also stresses that the Fed's first priority is to ensure that long-run inflation expectations are anchored, and only afterwards will it focus on employment concerns. On the prospect of rate cuts, he said the Fed will be more confident about reducing rates if trade deals are reached and tariffs prove to be only a one-time inflation shock.