Fed ’has some work to do on inflation,’ KC Fed chief says

Federal Reserve Chair Jeff Schmid expressed the need for the central bank to take action on inflation during his recent address at a credit union conference in Hawaii. While not explicitly advocating for additional rate hikes, Schmid emphasized that the inflation currently running above the 2% target is a concern and is moving in the wrong direction.

He disagreed with the prevailing narratives that claim high inflation is solely due to supply shocks or that demand is immune to the effects of higher interest rates. Schmid stressed that inflation is always the result of a supply and demand imbalance, and the Fed plays a crucial role in addressing inflation through its influence on demand.

The Federal Reserve raised rates by 0.25% in September to a range of 3.75%-4.00% but held steady at their last meeting. With recent inflation readings surpassing expectations and comments from other Fed officials, interest rate futures markets are now anticipating a potential 0.25% increase at the December meeting, with a small chance of a half-point hike.

Schmid urged that the idea of meeting the inflation objective requiring a reaction from specific prices, such as AI-related technology goods, is misguided. He firmly believes that the Fed has the tools and the responsibility to control inflation and ensure price stability, as emphasized by Chairman Kevin Warsh.