Federal Reserve Bank of Kansas City President Jeffrey Schmid delivered a hawkish warning on inflation, arguing that policymakers should not assume the latest energy-driven price surge will quickly disappear. Speaking at a conference in Iceland, Schmid said inflation remains his “primary concern,” stressing that it is “too hot and has been above target for too long.” While many forecasts assume inflation pressures will ease later this year as energy markets stabilize, Schmid appeared skeptical that the current shock can simply be dismissed as temporary.
The strongest message came from his rejection of the transitory inflation narrative. Schmid said he places “little stock in assuming that the most recent runup in prices is transitory within an acceptable time horizon,” adding that his focus remains firmly on inflation when considering the appropriate policy path. He also warned that “now is not the time to let down our guard,” highlighting concerns that inflation expectations could become more entrenched after years of above-target price growth. While Schmid stopped short of explicitly endorsing further rate hikes, his remarks suggest a growing reluctance within parts of the Fed to look through the inflationary effects of the Middle East energy shock.
Schmid also noted that the economy remains resilient enough for the Fed to maintain its focus on inflation. He said “most economic indicators suggest continued steady growth” and that the labor market remains “in balance.” Additionally, discussions with energy firms in his district revealed a “high degree of caution,” with producers reluctant to significantly increase output despite higher prices. That hesitation could limit the speed at which oil markets rebalance, reinforcing Schmid’s concern that the energy shock may prove more persistent than many investors currently expect.
