Kansas City Fed chief says rates remain too accommodative amid persistent inflation

Kansas City Federal Reserve President Jeff Schmid told Yahoo Finance on the eve of the Jackson Hole economic summit that the short-term policy rate remains "very accommodating" and that inflation is still too hot to meet the Fed’s 2% mandate. He said the latest Personal Consumption Expenditures (PCE) index showed a 3.3% annual increase in core inflation, with prices rising 0.2% month-over-month in July, indicating little progress toward the target.

"We haven't achieved our mandated goal of 2%," Schmid said. "I'm a very strong believer that if we're going to have a scorecard for the Fed, it's got 2% inflation, it's got stable prices on it. We're not there."

Schmid highlighted three dissenting votes at the July Fed meeting, aligning himself with those who view inflation as too high and argue for further rate hikes to avoid larger adjustments later. He noted his past dissents against rate cuts and reiterated his stance.

"I dissented late last year. I'm still consistent with that," he added.

While acknowledging higher energy prices linked to Middle-East tensions, Schmid emphasized demand-side pressures, citing rising demand for commodities used in data centers and a recent 20%-30% surge in agricultural commodity prices. He argued that the policy rate can influence such demand and that the Fed must look beyond headline supply shocks.

Schmid downplayed the impact of potential U.S.–Canada tariff changes, describing them as a small component of a $30 trillion economy. He also expressed uncertainty about the effectiveness of a 25- or 50-basis-point rate increase, saying the Fed will assess whether such moves affect behavior.

"The next question is, will a policy increase of 25 or 50 basis points matter? It probably moves behaviors, and I think that's what you're after," he said.

Regarding Fed communication and data analysis, Schmid said task forces he has established will explore better real-time data use and may inform future policy decisions. He noted no clear alternative to the PCE as the preferred inflation gauge.

Schmid also supported Fed Chairman Kevin Warsh’s suggestion to reduce the number of Federal Open Market Committee meetings from eight to six per year, arguing that more time between meetings could provide additional data points for trend analysis.

"I think there's some legs to that. You get more data sets in between meetings, and that's always helpful because what you're looking for is not one print. You're looking for a trend as you make your policy decisions," he said.

Overall, Schmid signaled a willingness to consider higher rates while awaiting further data and internal research before the Fed takes additional action.