Minneapolis Fed President Neel Kashkari just did something that makes crypto investors uncomfortable. He went from projecting a rate cut to projecting a rate hike, all within the span of a few months.

Kashkari announced on June 26 that he now expects one interest-rate increase before the end of 2026, a notable reversal from his earlier expectation of a rate cut. The federal funds target range currently sits at 3.50% to 3.75%, where the Federal Open Market Committee left it after its June 17-18 meeting.

From dove to hawk in one pivot

Nine of the 19 FOMC policymakers now project at least one rate hike in 2026. That’s nearly half the committee signaling that the next move on rates could be upward, not the downward glide path that markets had been pricing in.

Kashkari, who has served as Minneapolis Fed president since 2016 and holds a voting seat on the FOMC this year, pointed to persistent inflation as the primary culprit. But he added a wrinkle that caught attention: massive spending on artificial intelligence infrastructure is contributing to the inflationary pressure.

Geopolitical risks tied to the Middle East also factored into his revised outlook. Kashkari described current policy as “close to neutral” and offered no forward guidance, emphasizing that the Fed remains data-dependent.

What this means for crypto and risk assets

Higher rates for longer is not what crypto markets want to hear. When the risk-free rate goes up, the opportunity cost of holding non-yielding assets like Bitcoin increases. Institutional investors who allocate across asset classes tend to shift toward fixed income when yields rise.

The 2022 drawdown coincided with aggressive rate increases. A rate hike in 2026, after markets had been positioning for cuts, would represent exactly the kind of expectations mismatch that triggers volatility.

There’s a counterargument worth considering. Bitcoin has increasingly been framed as an inflation hedge, similar to gold. If Kashkari’s hawkish pivot is driven by persistent inflation, some investors may actually increase their Bitcoin allocation as a store of value.

Inflation prints over the next few months will determine whether this rate hike projection becomes reality. Kashkari noted that rates are expected to remain stable into 2027 unless a clear trend of disinflation emerges.