Kansas City Fed's Schmid says rates too accommodative as inflation stays hot
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Kansas City Federal Reserve President Jeff Schmid said on Wednesday that interest rates are too accommodative with inflation still above the Fed's 2% target. He spoke on the eve of the central bank's annual Jackson Hole economic summit. Schmid pointed to three dissents at the Fed's July policy meeting and said he would have sided with the view that action is needed now.
Key Facts
- Schmid said the Fed has not achieved its 2% inflation goal and called the current policy rate 'very accommodating.'
- He noted three dissents at the Fed's July policy meeting and said he would have sided with the view that inflation is too high and action is needed now.
- Schmid dissented twice last year against rate cuts, arguing inflation remained too high.
- The core Personal Consumption Expenditures index rose 3.3% in July from a year earlier, and 0.2% month over month, up from 0.1% in June.
- Schmid highlighted a 20% to 30% runup in agriculture commodities in recent weeks as an additional inflationary element.
Inflation and Policy Stance
Schmid told Yahoo Finance that the Fed has not achieved its mandated 2% inflation goal. He said the short-term policy rate is 'very accommodating' rather than restrictive. Schmid pointed to three 'thoughtful' dissents at the Fed's July policy meeting and said he would have sided with the narrative that inflation is too high and action is needed now to avoid more severe rate hikes later. He dissented twice last year at the last two meetings against rate cuts, arguing inflation remained too high.
Demand and Commodity Pressures
Schmid acknowledged higher energy prices driven by the Middle East conflict but said he is more focused on inherent demand in the economy. He cited demand for certain commodities and technology for building out data centers, noting that medium and small businesses are also driving demand for materials. Schmid underscored a significant runup of 20% to 30% in agriculture commodities in the last few weeks, saying that will add another inflationary element. He said the policy rate can affect certain demand features and that the Fed must dig deeper outside headline supply shock elements.
Inflation Data and Tariffs
Schmid said the latest Personal Consumption Expenditures index reading released Wednesday 'didn't inspire that we're making progress.' Core PCE rose 3.3% in July from a year earlier, and month over month prices rose 0.2%, up from 0.1% in June. Schmid brushed off the prospect of renewed tariffs between the US and Canada, calling them a small part of a $30 trillion-plus economy. He said there are much larger macro dynamics happening from a demand basis.
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Kansas City Fed's Schmid says rates too accommodative as inflation stays hot
