Fed’s Schmid Says Inflation Is Too Hot, Above Target Too Long

Kansas City Fed President Jeff Schmid. Photo by Betty Laura Zapata /Photographer: Betty Laura Zapata

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(Bloomberg) — Federal Reserve Bank of Kansas City President Jeff Schmid said inflation is his biggest worry given the risk of a further acceleration in the months ahead.

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While inflation data for June was better than expected, Schmid cautioned it would be premature to call that the beginning of a trend. 

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“My primary concern is inflation, which is too hot and has been above target for too long,” Schmid said Friday in remarks prepared for an economic forum hosted by the Kansas City Fed in Nebraska. “As such, my focus remains on inflation in setting the correct course for policy.”

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Schmid said inflation pressures extend beyond energy prices to include a broad basket of goods and services, including food prices, which he noted are rising faster than their pre-pandemic average.

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“On inflation, we are still not where we want to be,” he said.

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The remarks gel with a string of warnings from fellow officials this week who said they’re prepared to act to get inflation back to the Fed’s 2% target. Earlier on Thursday, Dallas Fed President Lorie Logan called for higher rates.

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Testifying before Congress this week, new Fed Chairman Kevin Warsh said policymakers have “no tolerance” for high inflation and vowed to restore price stability, though he stopped short of signaling he would support raising rates.

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Minutes of the Fed’s June 16-17 policy meeting reflected growing concern about inflation just as worries over the labor market slightly receded. Officials voted unanimously at that gathering, the first under Warsh’s leadership, to hold the Fed’s benchmark interest rate in a range of 3.5% to 3.75% for a fourth consecutive time.

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Two separate reports this week showed both producer and consumer price gains were cooler than expected in June. Investors reacted by pulling back from expectations for a rate hike as soon as this month. 

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But the Kansas City Fed chief pushed back on economic theory that suggests policymakers can look through one-time price shocks, which he said fails to factor in the role of demand.

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“One of the enduring lessons of the pandemic is that inflation is never just an issue of supply alone. Strong demand is almost always a factor as well,” Schmid said.

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—With assistance from Maya Prakash.

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