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Kansas City Fed President Jeff Schmid said Tuesday that current policy is not restrictive enough to cool inflation, which he called "too high," requiring tighter monetary policy to hit the 2 percent target.
Kansas City Fed President Jeff Schmid said Tuesday that current policy is not restrictive enough to cool inflation, which he called "too high," requiring tighter monetary policy to hit the 2 percent target.
"The economy appears to be performing well with the notable exception of inflation," Schmid said in prepared remarks at the Federal Reserve Bank of Kansas City Agricultural Economic Summit in Omaha, Nebraska. "My primary concern is inflation."
Schmid, who does not hold a vote on the Federal Open Market Committee this year, is the fifth Fed regional president to call for higher rates since last week's meeting, at which officials held the federal funds rate at 3.5 percent to 3.75 percent with three dissents favoring a hike. He said measures of inflation excluding energy still run solidly above 2 percent, revealing an underlying trend, and cautioned that recent relief from energy prices may prove short-lived as oil climbs again.
With new Chairman Kevin Warsh declining to offer guidance on his own policy path, remarks from officials like Schmid carry outsized weight in shaping expectations for a rate path markets already price as tighter. The dollar index traded 0.02 percent lower near 99.85.
Schmid argued that given the strength of demand and investment, the current stance of monetary policy is not restrictive, and that bringing inflation down to the Fed's objective will require tighter policy. He did not specify when or by how much he believes the Fed should raise rates. He described the labor market as roughly in balance, leaving price pressures as his dominant concern.
The official cautioned against dismissing inflation that stems from supply shocks, saying he is uncomfortable ever assuming a burst of inflation will be temporary. "The Fed, through its influence on demand, always has a role to play when it comes to keeping inflation in check, no matter the proximate cause of that inflation," he said. He noted that while June's inflation data showed an encouraging deceleration, it would be premature to put too much weight on a single data point relative to recent trends, and that with the price of oil once again rising, it is uncertain how persistent any relief on energy will be.
Schmid also pointed to artificial intelligence-related investment as an additional factor pushing up inflation, one that he said the Fed should not overlook. He reiterated that he views the personal consumption expenditures price index as the best gauge of inflation, and that underlying levels remain too high relative to the Fed's target.
The remarks add to a hawkish chorus within the Fed even as the central bank navigates a leadership transition. Markets are broadly positioned for tighter policy ahead, though Warsh has so far declined to offer clear guidance on his own approach to setting rates, leaving officials like Schmid to shape expectations in the interim. The last time the Fed faced a comparable run of regional presidents publicly pressing for hikes was in 2023, when the committee ultimately delivered a 25-basis-point increase within two months of the dissent-heavy meeting. If inflation data over the coming months fails to confirm a durable deceleration, pressure for a hike at the next FOMC meeting could intensify, while a sustained cooling would give Warsh room to hold the line.
This article is for informational purposes only and does not constitute investment advice.
