Kansas City Fed President Jeff Schmid says the central bank has the tools and the responsibility to bring down inflation. He did not specifically call for more rate hikes, while futures markets already price a December increase.
Kansas City Federal Reserve President Jeff Schmid said the Fed has the tools and responsibility to deal with price pressures that are running too hot. Speaking on Sunday to a credit union conference in Hawaii, he said, according to Reuters: "has some work to do on inflation".
Schmid says inflation sits above the 2% target
Schmid did not specifically call for additional rate hikes, but he said inflation is uncomfortably above the 2% price stability target and moving in the wrong direction. He added that common narratives about the nature of current inflation and the Fed's ability to contain it are off-base.
First, he rejected the view that high inflation reflects repeated supply shocks. In his words, inflation is always the result of an imbalance between supply and demand, and the Fed, through its influence on demand, always has the tools and responsibility to address it.
Demand from AI buildout is not beyond Fed policy
Schmid, who is not a Federal Open Market Committee voting member this year, also disagreed with the narrative that sources of demand-induced inflation, such as the artificial intelligence buildout, resist Fed policy. He pushed back as well on the idea that meeting the inflation objective requires a reaction from any particular set of prices, such as prices for AI-related technology goods.
Both narratives, he said, share a common core: that inflation is somehow beyond the Fed's power to control. Schmid said he does not believe this is true, and he pointed to Chairman Kevin Warsh's remark that the Fed has work to do.
Markets price a December hike
The Fed raised rates by a quarter-percentage point in September to 3.75%-4.00%, but opted not to lift them again at last month's meeting. Following recent inflation readings that were higher than expected and comments from other Fed officials, including Governor Christopher Waller, interest rate futures markets are now fully priced for a quarter-point increase at December's meeting, with a small probability of a half-point hike.
Source: Reuters via Investing.com
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