# Minneapolis Fed's Kashkari pencils in one interest rate hike this year > Source: > Published: 2026-06-26 19:38:45+00:00 Minneapolis Federal Reserve president Neel Kashkari said Friday he has penciled in one interest rate hike by the end of the year amid the build-out of AI infrastructure. He also sees no assurance that the conflict with Iran won't have further consequences for inflation. "It's a pencil, and so you know we're going to have to see how the data comes in," Kashkari said on a panel at the Aspen Ideas Festival in Colorado. That's a sharp change from the rate cut he penciled in back in March. "I don't trust Iran to honor whatever agreement has been made," he said. "There's some evidence overnight that [they're already reneging on it](https://finance.yahoo.com/energy/articles/trump-says-iran-violated-ceasefire-155937561.html), so I certainly am not seeing all clear coming out of the Middle East, and that makes me cautious about feeling too good that the worst is behind us." Even accounting for Iran, Kashakri said inflation is still too high when looking at "core" inflation, stripping out energy and food prices, which can be volatile. *Read more: **How jobs, inflation, and the Fed are all related* The Federal Reserve's preferred inflation gauge showed prices heated up in May to the highest level in three years. The Personal Consumption Expenditures index rose 4.1% in May, up from 3.8% in April. Excluding energy and food, the way the Fed prefers to assess the inflation gauge, core PCE rose to 3.4%, up from 3.3% in April. That marked the highest level since October 2023. "Going forward, might we have to raise rates from here? It is certainly possible," Kashkari said. "That's why I penciled in one dot, but we need to see how some of these other dynamics play out before I can give you any kind of certainty in that answer." While Kashkari said inflation is being driven by tariffs and the price of energy and fertilizer that's been disrupted by the closure of the Strait of Hormuz, massive investment in data centers and their associated infrastructure is also fueling price increases. "Anything that touches those sectors, the prices are skyrocketing on those parts of the economy," Kashkari said. He noted that if massive investment is going into the economy now that wasn't there before, all else being equal, interest rates will be higher across the economy. "The Fed is going to try to need to understand that, and then we're going to need to set rates above or below that elevated neutral rate," he said. "So it probably means that interest rates that the Fed does set will be higher than they were before as we go through this buildout." *Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance, she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X **@Jenniferisms** and on **Instagram**.* **Click here for the latest economic news and indicators to help inform your investing decisions** **Read the latest financial and business news from Yahoo Finance**