Rate hike watch – Fed’s Schmid says tighter policy needed as inflation stays too high
Schmid's comments add to a growing chorus of Fed officials signalling openness to further tightening, even though he lacks a vote on the FOMC this year, reinforcing market expectations that the path of least resistance for policy is higher rather than lower. His characterisation of current policy as not restrictive, combined with scepticism that June's inflation deceleration marks a genuine trend, suggests hawkish voices within the Fed remain unconvinced that price pressures are fading. The explicit link he draws between AI-related investment and inflation is a relatively novel framing that could draw attention, as it broadens the inflation narrative beyond the energy and tariff-related shocks that have dominated recent commentary. With new Chairman Kevin Warsh yet to offer clear guidance on his own policy thinking, remarks like Schmid's are likely to carry outsized weight in shaping market expectations for the rate path until Warsh provides more clarity.
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A non-voting Fed official argued the central bank needs to tighten further, casting doubt on whether recent inflation relief will last. Schmid is the fifth Fed regional president to say he would like to raise rates since last week's 'on hold' meeting.
Summary:
- Kansas City Fed President Jeff Schmid said tighter monetary policy is needed to bring inflation, which he called "too high" and "worrisome," back to the 2% target
- Schmid said the current stance of Fed policy is not restrictive
- He said the broader economy is performing well overall with resilient growth, but inflation remains his primary concern
- Schmid welcomed recent inflation data but said it is too soon to say whether inflation is genuinely easing
- He cautioned that recent relief on energy prices may prove temporary, and said the Fed should not ignore inflation even when driven by a supply shock
- Schmid said AI investment is contributing to inflation and that the Fed should not ignore that factor
- He described the job market as roughly in balance
- The remarks were his first since last week's FOMC meeting, at which officials voted to hold the federal funds rate steady between 3.5% and 3.75%, with three officials voting for a hike
Federal Reserve Bank of Kansas City President Jeff Schmid said on Tuesday that some degree of monetary policy tightening is needed to bring inflation, which he described as "too high" and "worrisome," back down to the central bank's 2% target. Speaking in the text of a speech prepared for an event hosted by his bank on farming issues, Schmid said the economy is performing well overall, with the notable exception of inflation, which remains his primary area of concern.
Schmid argued that current Fed policy is not restrictive given recent data, and that bringing inflation back to target will therefore require tighter policy. He did not specify when or by how much he believes the Fed should raise rates. Schmid does not currently hold a vote on the interest-rate-setting Federal Open Market Committee, but his remarks add to a broader set of comments from Fed officials in recent days signalling openness to further tightening depending on how the economy evolves.
The comments were Schmid's first public remarks since last week's FOMC meeting, at which officials voted to hold the federal funds target rate steady in a range of 3.5% to 3.75% amid ongoing concerns that inflation remains elevated. Three officials at that meeting voted in favour of a rate increase rather than holding steady, underscoring a degree of internal disagreement over the appropriate policy path. Markets are broadly positioned for tighter policy ahead, though newly installed Fed Chairman Kevin Warsh has so far declined to offer clear guidance on his own approach to setting rates, leaving remarks from officials like Schmid to carry additional weight in shaping expectations.
In his remarks, Schmid cautioned against dismissing inflation that stems from supply shocks, and said recent relief from higher energy prices may prove short-lived given the shifting dynamics of the conflict in the Middle East. He noted that while June's inflation data showed an encouraging deceleration, it would be premature to place too much weight on a single data point given recent trends, adding that with oil prices rising again, it remains uncertain how durable any energy-related relief will be. Schmid also said he views the personal consumption expenditures price index as the best gauge of inflation, and reiterated that underlying inflation levels remain too high relative to the Fed's target.
Notably, Schmid pointed to artificial intelligence-related investment as an additional factor pushing up inflation, one that he said the Fed should not overlook. He described the labour market as roughly in balance, suggesting that employment conditions are not currently a significant source of concern relative to price pressures. Taken together, the remarks position Schmid among the more hawkish voices within the Fed as policymakers weigh the balance between persistent inflation risk and a labour market that, by his own account, appears broadly stable for now.
This article was written by Eamonn Sheridan at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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