On Aug 5 2026, Minneapolis Fed President Neel Kashkari went on CNBC and made the case for small rate increases. His pitch: get started now, in measured steps, so the Fed does not have to slam the brakes later.
The Federal Open Market Committee, the group that sets short-term interest rates, has kept rates unchanged all year. The committee's next meeting runs Sept. 15-16, and the inflation and jobs reports due between now and then will shape the debate.
The majority backed keeping the benchmark rate at 3.5%-3.75%. The other nine voters wanted to hold steady.
Kashkari argued that small moves now could prevent the need for aggressive hikes later if inflation becomes deeply embedded. He pointed to the economy's strong spot: "Corporate earnings are through the roof. They're doing great. The consumer is hanging in there. The labor market is hanging in there."
He added, "I look at this constellation and I say, what evidence do I have that monetary policy is particularly restrictive right now?"
Monetary policy is restrictive when rates are high enough to slow borrowing and spending. Kashkari sees little sign of that slowdown, which is why he says the Fed still has more work to do.
Inflation is still far above the Fed's 2% target, even though June offered some relief as oil prices declined and Middle East tensions eased temporarily. Kashkari said he worries about supply shocks, sudden disruptions that push prices up, and wants the Fed ready to respond.
He did not lock in a timetable, but he said a first step could come as soon as September. "So, I argued now is the time to start slowly moving up as we get more data in," he said.
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Not everyone on the committee shares Kashkari's sense of urgency. Philadelphia Fed President Anna Paulson, who also has an FOMC vote this year, called the current rate level "mildly restrictive" and said waiting for more data is the right call.
She described last week's decision to hold as "not a close call."
Paulson's point is that rates are only slightly cooling the economy, so there's no need to rush. She would rather wait and see what the next reports show before changing course.
Those three dissents were the first during Kevin Warsh's time as Fed chairman. Kashkari said Warsh, who has previously favored lower rates, did not push him to change his vote.
Warsh told him to "do what you think is the right thing to do for the economy." Kashkari's reply: "I really appreciate that."
For now, Kashkari is sticking with his argument. "I'm not calling for a dramatic increase in interest rates," he said.
He wants to avoid a situation where the Fed has to play catch-up.
"I would rather get going now in small steps than wait till later, then we have a really entrenched inflation problem and have to raise rates aggressively," he said.
So which side wins? That depends on the economic data between now and the Sept. 15-16 meeting.
For your portfolio, the important thing is not whether the Fed moves in September or October. Both are possible, and even Kashkari has not made up his mind yet.
The bigger question is how the Fed responds if inflation does not keep cooling. Small, gradual increases give markets time to adjust.
Waiting too long could force larger moves later, and those are the ones that tend to cause sharper market moves and faster-rising borrowing costs.
Kashkari is betting on the boring route: take the small bumps now to avoid a bigger one down the road.
For investors, a Fed that moves slowly and predictably is a lot easier to live with than one that has to play catch-up.
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