Key facts
- Schmid said inflation is uncomfortably above the 2% target and moving in the wrong direction.
- Schmid did not specifically call for additional rate hikes in his remarks.
- Schmid is not a Federal Open Market Committee voting member this year.
- Rate futures markets are fully priced for a quarter-point increase at December's meeting, with a small probability of a half-point hike.
Kansas City Federal Reserve President Jeff Schmid said on November 15 that inflation is running too hot and that the Fed has the tools and responsibility to address it. Speaking to a credit union conference in Hawaii, Schmid said inflation is uncomfortably above the 2% price stability target and moving in the wrong direction. He did not specifically call for additional rate hikes.
Schmid pushed back on two narratives he said are off-base. The first holds that high inflation reflects repeated supply shocks; Schmid said inflation is always the result of an imbalance between supply and demand, and that demand always plays a role. The second holds that demand-driven inflation sources, such as the artificial intelligence buildout, are resistant to Fed policy; Schmid said he disagrees.
The Fed raised rates by a quarter-percentage point in September to 3.75%-4.00% but opted not to lift them again at its October meeting. Following recent inflation readings that were higher than expected and comments from other Fed officials, including Governor Christopher Waller, interest rate futures markets are fully priced for a quarter-point increase at December's meeting, with a small probability of a half-point hike. Schmid is not a Federal Open Market Committee voting member this year.