Fed’s Schmid Warns Inflation Is Not ‘Intrinsically Transitory’ Despite Soft CPI

In a speech on Thursday, Kansas City Fed President Jeff Schmid cautioned against drawing premature conclusions from this week’s softer-than-expected June CPI report, arguing that inflation remains too high and price pressures continue to be broad-based. While stopping short of calling for another interest rate hike, Schmid said current inflation, running at roughly double the Fed’s 2% target, remains “concerning” given the continued resilience of the labor market. He stressed that policymakers should not overreact to a single month’s data, warning that “it would be premature to put too much weight on a single data point relative to recent trends.”

Schmid delivered one of his strongest rebuttals yet to the view that inflation will naturally fade over time. “I am uncomfortable ever assuming that a burst of inflation is likely to be temporary,” he said, adding that “inflation shocks are not intrinsically transitory.” He also warned that recent relief from lower energy prices may prove short-lived, noting that “with the price of oil once again rising, it is uncertain how persistent any relief on energy will be.” His remarks reinforce the Fed’s preference to see sustained evidence of easing inflation before considering any shift in policy.

Beyond the economic outlook, Schmid also defended the importance of clear communication from policymakers at a time when Fed Chair Kevin Warsh has advocated a more restrained approach to forward guidance. “Independence demands accountability,” Schmid said, arguing that the central bank must remain transparent about how it reaches policy decisions to preserve public confidence and avoid perceptions of political influence. His comments suggest that while the Fed may speak less about the future path of interest rates, officials will continue explaining the reasoning behind their decisions.