Kansas City Fed President: "Inflation Remains High... Rate Decisions Focused on Inflation"

"Supply shocks alone cannot explain inflation"
"Strong demand is also a factor"
Hawkish remarks continue after Logan
Market expectations for an early rate hike retreat

Jeff Schmid, President of the Federal Reserve Bank of Kansas City, emphasized that inflation remains excessively high and has been above the Federal Reserve (Fed)'s target level for too long, stating that price stability is the top priority for monetary policy. He also cautioned that although the consumer and producer price indices for June came in lower than market expectations, it is too early to judge this as the beginning of a downward trend in inflation.

Federal Reserve (Fed). Reuters Yonhap News

On July 16 (local time), at an economic forum hosted by the Kansas City Fed in Nebraska, President Schmid said, "My greatest concern is inflation," and added, "Prices are running too hot and have exceeded the Fed's target for too long." He continued, "Therefore, my focus in setting the right course for monetary policy remains squarely on inflation."

President Schmid acknowledged that the June inflation indicators turned out more favorable than expected, but stressed that one month of data is not sufficient to conclude that upward price momentum has stabilized. He said, "In terms of inflation, we still have not reached the level we want."

He diagnosed that inflationary pressures are not limited to energy prices but are spreading to a broad range of goods and services, including food. In particular, he pointed out that the rate of increase in food prices remains higher than pre-COVID-19 averages.

President Schmid's comments align with a series of cautious remarks about inflation from Fed officials this week. Dallas Fed President Lorie Logan also argued on the same day that the base interest rate may need to be raised slightly further to bring inflation down.

Fed Chair Kevin Warsh also told a congressional hearing this week that policymakers will not tolerate high inflation and pledged to restore price stability. However, he did not specify whether he would support raising interest rates.

The minutes from the Federal Open Market Committee (FOMC) meeting held last month on June 16–17 showed that while concerns about the labor market have somewhat eased, vigilance regarding inflation risks has increased.

At that meeting, which was the first since Chair Warsh took office, the Fed unanimously decided to keep the base interest rate unchanged at 3.50–3.75% per annum. This was the fourth consecutive holding. Both June's consumer and producer price increases, announced this week, came in below market expectations. As a result, some investors have scaled back their forecasts that the Fed could raise rates as early as this month.

However, President Schmid pushed back against the view that temporary supply shocks driving up prices do not require a monetary policy response. He warned against underestimating the role of demand in the inflation process.

He said, "One of the lasting lessons from the COVID-19 crisis is that inflation is never solely a supply-side issue," adding, "Strong demand almost always plays a role in rising prices."

Nevertheless, he gave a positive assessment of the overall U.S. economy. President Schmid said, "The labor market is in balance and economic growth continues to show resilience."

This content was produced with the assistance of AI translation services.