Kashkari's hawkish declaration: No rate cuts or QE in January, sticky inflation alters the Federal Reserve's plans for the year

The recent series of statements by Federal Reserve Minneapolis President Kashkari are rewriting market expectations for the pace of rate cuts this year. He not only explicitly opposes rate cuts at the January FOMC meeting but also states that he does not believe the Fed needs to implement quantitative easing, while emphasizing that rates should remain unchanged this month. Behind these hawkish signals lies a deep concern over economic overheating and sticky inflation.

Why is Kashkari so hawkish?

Kashkari has demonstrated a clear hawkish stance in his recent remarks. He is quite optimistic about the economic outlook, expecting steady growth, but it is this very growth momentum that makes him more cautious about inflation risks.

Sticky inflation is the key concern

Kashkari bluntly states that high inflation over many years is “very concerning.” According to the latest data, core inflation remains at 3%, a level that, while lower than last year’s peak, is still well above the Fed’s 2% target. The persistence of this sticky inflation makes it difficult for the Fed to easily shift toward easing policies.

Overheating economy requires high interest rates to cool down

The latest economic data further reinforce Kashkari’s stance. November retail sales rose 0.6% MoM, exceeding market expectations, and the November PPI hit 3%, also above the expected 2.7%. These figures indicate strong economic growth in the U.S., but also suggest ongoing inflation pressures. In this context, maintaining relatively high interest rates becomes a necessary choice.

Policy implications and market impact

Kashkari’s statements clearly send two signals: first, there will be no rate cuts at the January FOMC meeting; second, the pace of rate cuts throughout the year may be much slower than market previously anticipated.

Rate cut expectations need to be readjusted

Based on prior market expectations, many investors had hoped the Fed would start a rate cut cycle in early 2026. However, Kashkari’s hawkish stance indicates this outlook is overly optimistic. As a voting member of the 2026 FOMC, his voice carries significant weight in decision-making. He emphasizes “our current policy stance is already very close to ‘neutral’,” implying the Fed may hold high rates for a longer period.

Quantitative easing remains a distant topic

Kashkari explicitly states he does not believe the Fed needs to implement quantitative easing, further dispelling market expectations of large-scale liquidity injections. QE is typically a last resort when the economy is in trouble and rates are near zero. Kashkari’s denial reflects the Fed’s confidence in the current economic situation.

Federal Reserve independence in the political context

It is worth noting that Kashkari repeatedly emphasizes the importance of Fed independence and specifically points out that the credibility of the next Fed Chair is “most important.” Behind this stance is concern over potential interference by the Trump administration in Fed decisions.

Trump and the Fed’s power struggle

According to reports, actions taken by the Trump administration against the Fed have been explicitly characterized by Kashkari as “related to monetary policy,” rather than ordinary political statements. This power struggle adds uncertainty to policy, but Kashkari’s hawkish stance also shows the determination of Fed officials to maintain independence.

Follow-up points

Kashkari plans to speak at 01:00 Beijing time on January 15, which may further clarify his views on the economy and policy. Additionally, the Fed will release the Beige Book at 03:00 on January 15, providing a more comprehensive picture of the economic landscape.

Jerome Powell’s term expires in May 2026, and the selection of the next Chair is a current focus. Kashkari’s emphasis on the credibility of the next Chair hints that the Fed is preparing for a possible leadership transition.

Summary

Kashkari’s hawkish stance reflects the real dilemma faced by the Fed: strong economic growth but persistent inflation. In this context, maintaining relatively high interest rates is a reasonable choice rather than a policy mistake. The market needs to readjust expectations for the full-year rate cut cycle, which may be far fewer than initially optimistic forecasts. Meanwhile, the Fed’s efforts to maintain independence and ensure policy credibility are equally important for long-term market stability. For investors, the key is to understand why the Fed is holding firm on high rates rather than simply expecting rate cuts.