Fed’s Schmid says tighter policy needed to curb inflation

A senior Federal Reserve official has signaled that the central bank may need to raise interest rates further to combat persistent inflation, underscoring a hawkish shift in internal debate. Federal Reserve Bank of Kansas City President Jeffrey Schmid said in a speech on Tuesday, August 4, that current monetary policy is not restrictive enough and that tighter policy will be required to bring inflation back down to the Fed's 2% target.

Schmid, who does not hold a vote on the Federal Open Market Committee this year, made the remarks in prepared comments for an event in Omaha. He described inflation as his primary concern, arguing that recent supply shocks, including the war in Iran and significant investments in artificial intelligence, are contributing to price pressures. He cautioned against assuming such inflation bursts will be temporary, especially when demand is strong. "I am uncomfortable ever assuming that a burst of inflation will be temporary," Schmid said. "How persistent a spike in inflation is ultimately depends importantly on how the Fed reacts or is expected to react."

His comments add to a chorus of officials expressing openness to further tightening following...