Kansas City Fed President Jeff Schmid stated that tighter monetary policy is necessary to bring inflation down to the Federal Reserve's 2% target, noting that current policy does not appear restrictive enough.
The comments from Fed officials highlight ongoing debate within the central bank about the appropriate path for monetary policy, with some advocating for tighter measures to combat inflation.
Federal Reserve Bank of Kansas City President Jeff Schmid said on Tuesday that some form of monetary policy tightening is needed to bring "too high" inflation back to the 2% target. Schmid stated that the economy appears to be performing well, with the notable exception of inflation. He expressed concern that current monetary policy does not seem restrictive enough to lean against price pressures. Schmid, who does not currently vote on the Federal Open Market Committee, did not specify when or by how much he would advocate for rate increases. These remarks were his first since the previous week's FOMC meeting, where officials voted to keep the federal funds target rate steady at between 3.5% and 3.75%. Three Fed officials had voted in favor of a hike to quell price pressures, and other officials have recently signaled openness to raising rates depending on economic conditions. Schmid cautioned against dismissing inflation stemming from supply shocks, noting that recent relief from higher energy prices proved short-lived amid shifting geopolitical currents. He added that underlying inflation levels are too high relative to the Fed's 2% target and that AI investment is also contributing to inflation in a way the Fed cannot ignore. Meanwhile, Federal Reserve Bank of Philadelphia President Anna Paulson is keeping an open mind on monetary policy, prioritizing the 2% inflation target and full employment. She supported the Fed's decision to hold rates steady and indicated that persistent high inflation could necessitate more restrictive policy.