Minneapolis Fed President Neel Kashkari and Cleveland Fed President Beth Hammack were two of the three dissenters to the Fed statement in a rare move. They’re both out with their reasoning.
- Kashkari:
Pre-Iran: easing inflation and steady jobs pointed to gradual cuts - Iran shock adds stagflation risk via oil and supply disruption
- Hammack: uncertainty up, inflation risks skew higher, easing bias outdated
- Both: hikes are back on the table if inflation persists
Before the Iran conflict, the Fed’s path looked relatively clean. Inflation was trending lower, driven by cooling wages, easing housing pressures and a likely fade in tariff-driven goods inflation. The labor market was stable, if unspectacular. In that environment, Kashkari saw policy as mildly restrictive and leaned toward eventual cuts.
That framework is now in question. The Iran conflict introduces a new commodity shock, with oil moves already comparable to the Ukraine war but with potentially tighter supply constraints if the Strait of Hormuz remains disrupted.
Kashkari’s core argument was about optionality. Forward guidance that implies cuts risks easing financial conditions prematurely. Instead, the Fed should acknowledge that the next move could go either direction depending on how inflation and growth evolve.
He outlined two paths. A quick resolution keeps inflation elevated but manageable, pushing the Fed to hold rates longer and ease slowly. A prolonged disruption raises the risk of entrenched inflation and unanchored expectations, where the Fed may need to tighten even as growth weakens.
Hammack’s comments reinforce the shift. She points to resilient economic data, broader inflation pressures and rising uncertainty. Together, the message is a reset in the reaction function: less confidence in cuts, more willingness to respond both ways but we will see if the rest of the FOMC joins them at the next meeting, and how new Fed chair Kevin Warsh manages the division.
Notably, Kashkari cited UMich inflation expectations in his dissent with this chart
