Kansas City Fed Chief Backs Rate Hike Amid Broad Inflation

Jeff Schmid, President of the Federal Reserve Bank of Kansas City, explicitly supported the recent interest rate increase. He stated that the move was a necessary step to address persistent price growth. Schmid emphasized that inflation is not solely driven by rising oil prices.

The Federal Reserve raised its benchmark federal funds rate by 25 basis points to a range of 3.75% to 4.00%. This was the first increase in more than three years. The decision was made despite pressure from the White House to lower borrowing costs.

Inflation Extends Beyond Energy Sector

Schmid noted that inflation excluding energy has also been running hot. He observed that a broad range of goods and services shows price growth inconsistent with the Fed's mandate. According to GN markets/inflation (en-US) reports, this signals a structural issue rather than a temporary shock.

The Kansas City Fed chief described the labor market as appearing in balance. He characterized current economic growth as solid. These factors inform the Fed's continued focus on price stability over the coming months.

Policy Stance Remains Unanimous

Policymakers voted unanimously to lift rates this week. The median forecast indicates at least one more hike later this year. Chairman Kevin Warsh stated that the increase removed a dose of accommodation from the economy.

Schmid had previously indicated he would have supported a rate hike in July. At that time, officials voted 9-3 to leave rates unchanged. His current remarks align with the consensus view on the need for tighter monetary policy.

Focus Shifts to Payment Systems

Schmid dedicated the majority of his remarks to real-time payments. He encouraged banks to participate in FedNow. This system allows for instant inter-bank transfers and aims to modernize financial infrastructure.