Fed's Kashkari upbeat on 2026, expects inflation to moderate

By Michael S. Derby

Jan 14 (Reuters) - Federal Reserve Bank of Minneapolis President Neel Kashkari said Wednesday he is optimistic about the economic outlook and expects inflation to wane, but it is unclear by how much.

"My outlook for the U.S. economy is one of pretty good growth going forward," the official said in a virtual event. "I think inflation ?is heading down...The question is, is it going to be two and a half percent by the end of the year, something ?short of that, or something above that? I don't know."

Kashkari, who will have a vote on ?the rate-setting Federal Open Market Committee this year, did not offer any ?clear views on what ?he expects out of interest rate policy this year after last year's easing cycle that left the central bank's interest rate target ?range at between 3.5% and 3.75%. Fed officials have ?penciled in a quarter percentage point cut at some point this year but thus far they've given no signal when that might happen as they look to ?see how much inflation eases, amid a tender ?job market.?

Kashkari ?spoke as the Fed has come under deeper attack by the Trump administration, with the legal moves being viewed by the Fed as punishment for the central bank not taking ?orders from President Donald Trump. The White House is set to name a successor to Fed Chair Jerome Powell soon, ahead of the end of his term in May, and there is considerable anxiousness as to who will get the job and how independent they would be from the political process.?

"Whoever he or she is will have to make their best arguments to the rest of ?the committee ?on what monetary policy is appropriate to achieve the dual mandate that we are all charged by Congress to try to achieve. That person gets one vote, and, you ?know, the best argument wins," hinting that other Fed officials could outvote the chair if they saw fit.?

Kashkari said in a New York Times interview published earlier Wednesday that the Trump administration's?attacks on the Fed were "really about monetary policy."?

The official said in his appearance that "we are really going to have to watch both sides of our dual mandate" this year, and noted that while it's critical to get inflation back to target, "if we get ?too aggressive with interest rates, that could hurt the labor market," which is also an undesirable outcome.?

Kashkari also said that he has yet to see a broad rise in financial distress although he noted many are pressured, and that could also be ?coming from inflation that's still too far above target.?

(Reporting by Michael S. Derby; Editing by Chizu Nomiyama )