New Development: Fed Officials Drop the Rate-Hike Warning

Minneapolis Fed President Neel Kashkari said Thursday at the Bank of Japan-IMES Conference that inflation is "much too high" and remains his top priority. According to CNBC, Kashkari warned that if inflation expectations become "unanchored," the Fed would have to "respond even more aggressively." His comments signaled rate hikes are once again under consideration.

Fed Governor Lisa Cook went further. According to Bloomberg, Cook said she is prepared to raise rates if inflation lingers. Not hold. Raise.

The market spent months pricing in rate cuts. Two Fed officials just told it to reconsider.

What's Driving It: Iran, Energy, and Fertilizer

Kashkari specifically named energy and fertilizer prices as key inflation drivers, according to CNBC. He flagged the Iran conflict directly, noting that global inflationary pressure has been compounded by COVID-19 fallout, tariffs, the Ukraine war, and the Middle East conflict.

"Those inputs do affect other categories as well," Kashkari said, according to CNBC. He warned that energy prices could spread into the broader economy — and they already are.

Core CPI — stripping out food and energy — came in at 2.8% year-over-year in April, with a 0.4% monthly jump, according to CNBC. The monthly number is accelerating, not cooling.

Powell Is Out. Warsh Is In. And There's a DOJ Investigation.

Jerome Powell held his final press conference as Fed chair at the April 29th FOMC meeting. According to U.S. Bank, the Senate banking committee advanced Kevin Warsh's nomination to the Senate floor that same day.

Powell isn't simply leaving. He told the press conference he will remain on the Board of Governors until the Justice Department's investigation into him is "well and truly over," according to U.S. Bank. The investigation centers on Powell's Congressional testimony about cost overruns on the Fed's headquarters renovations.

The practical effect: President Trump cannot nominate a replacement for Powell's Board seat until Powell steps down. The Fed's leadership structure remains unsettled at a moment when two officials are signaling potential rate hikes and markets need clarity.

The April 29th Decision: Hold — But With a Fight Inside

The FOMC held the federal funds target range at 4.25% to 4.50% at its April 29th meeting, according to U.S. Bank. Markets broadly expected the hold. The internal divisions went largely unnoticed.

According to U.S. Bank, one member wanted to cut rates by 0.25%. Three other members disagreed — not with the rate decision itself, but with the statement's easing bias. They opposed the Fed signaling future cuts.

A four-way split on messaging has emerged at a time when inflation is 3.8% and two officials are openly discussing hikes. The Fed is fractured.

The 2% Target: Five Years and Counting

Inflation has been above the Fed's 2% target every single year since 2021, according to the Federal Reserve Bank of Atlanta. This represents a sustained period above the central bank's stated goal across multiple administrations.

The Atlanta Fed also noted that President Trump called a 2.7% inflation rate "almost a perfect number" back in October 2025 — while simultaneously pressuring the Fed to cut rates. The political pressure clouded the Fed's commitment to the 2% target. At 3.8% inflation now, that comment appears worse in hindsight.

Wall Street Is Getting Nervous

Bank of America strategists warned clients this week to prepare for a summer correction, according to CNBC. The S&P 500 has already hit BofA's year-ahead target of 7,430. The bank's note said: "Risk-reward is deteriorating, and multiple indicators favor a more defensive stance."

BofA's base case: hold trend-following longs through June, then brace for elevated correction risk between June and September. The bank still sees the market recovering to 8,000 by end of 2026, matching Goldman Sachs' projection from Wednesday, according to CNBC.

The rally was partly built on hopes of rate cuts. Those hopes took a hit from Kashkari and Cook's recent comments.

The Real Story

Coverage has treated this as a routine "Fed holds rates" story. The underlying dynamics are more significant: inflation that won't come down, a leadership transition muddied by a DOJ investigation, and two officials publicly floating rate hikes while another wanted cuts. It reflects deep disagreement at the central bank on the path forward.

Largely absent from coverage: the fertilizer price angle Kashkari specifically raised. Energy affects your gas tank. Fertilizer affects your grocery bill. Both are moving upward.

What This Means for You

If Cook and Kashkari prevail, mortgage rates won't drop this summer. Neither will credit card rates, auto loan rates, or small business borrowing costs.

The most exposed groups: anyone who bought a house in the last two years expecting a refi when rates fell, small businesses running on variable-rate debt, and anyone with variable-rate consumer loans.

The Fed has been above its own 2% target for five straight years. Two officials just signaled the next move might be up. Plan accordingly.