Fed's Kashkari Sees Another Rate Increase This Year and One More in 2027
Minneapolis Fed President Neel Kashkari has indicated potential for another interest rate hike later this year, alongside expectations of a further increase in 2027. This commentary reflects a cautious stance towards the pace at which AI may enhance productivity and impact corporate profitability. The emphasis on gradualism in monetary policy is significant as it suggests ongoing concerns about inflation dynamics and overall economic stability, which could influence currency markets—particularly the USD.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). Barron’s view aligns more closely with the upper third — JPMorgan and ING share that framing.
How firms align
JPMorgan remains aligned with the bullish narrative around rate hikes, maintaining a target of 1.10 for the EUR/USD pair. In contrast, BofA holds a more bearish outlook, setting a target of 1.04. This divergence underscores differing interpretations of the Fed's rate trajectory and its implications for the USD.
What the data shows
Recent reports suggest a tightening economic outlook influenced by Fed speech and inflation readings. Further details on projections can be found in our research at /research/impact-of-fed-policy.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Kashkari's commentary suggests another Fed rate hike by year-end; USD may strengthen.
- 02Watch for EUR/USD levels around 1.075 for potential volatility.
- 03Focus on inflation data releases post-Fed meetings as a catalyst for movements.
Market implications
Next week, attention should turn to the upcoming inflation data release on the calendar, which could sway sentiment around USD strength. If inflation holds or rises unexpectedly, this reinforces Kashkari's stance and may push EUR/USD lower towards 1.07.
Risks to this view
A major shift in inflation data towards deflationary pressures could invalidate expectations for rate hikes, challenging the current USD bullish outlook. A significant drop below 1.05 in EUR/USD would suggest changing market dynamics.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.65
Sources & References
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