Jeff Schmid, president of the Kansas City Federal Reserve, declared Tuesday that current monetary policy lacks teeth. He wants tighter rates to push inflation back to the Fed's 2% target, a view that splits the central bank's leadership just days after officials voted to hold rates steady at 3.50%-3.75%.
Speaking in Omaha, Schmid flagged inflation as his main worry. Price growth has overshot the Fed's goal for over five years now. He rejected the idea that current policy is restrictive enough. "Given the strength of demand and investment, I do not see the current stance of monetary policy as restrictive," he said, adding that bringing inflation down will require tightening.
Three Fed officials already sided with him last week, pushing for a quarter-point hike in a 9-3 vote. Schmid's remarks echo their frustration, though he doesn't vote on rate decisions this year. He also warned against dismissing supply-driven inflation as temporary, noting that strong demand amplifies the impact of such shocks.
Philadelphia Fed President Anna Paulson, meanwhile, struck a different note with CNBC. She believes policy is already mildly restrictive and pegged underlying inflation between 2.4% and 2.8% once tariffs and energy are stripped out. Still, she ruled out any near-term rate cuts. Without further progress on inflation, she said rates might need to stay higher or hold steady longer.
Traders are betting the hawks win. CME FedWatch data show 56.9% odds of a September hike, climbing to 83.2% for at least one increase by year-end. The next inflation print could shift everything. Hotter numbers would strengthen Schmid's hand and pile pressure on rate-sensitive assets, including crypto.
This article is for informational purposes and does not constitute financial advice. Always conduct your own research before making investment decisions.
