Fed's Schmid Warns Policy Isn't 'Very Restrictive,' Hints at Hikes Amid Renewed Inflation

Kansas City Fed President Jeff Schmid argued that the current monetary policy is not restrictive enough to combat inflation, suggesting further tightening may be necessary.

His comments come as recent data shows inflation re-accelerating, with both CPI and the Fed's preferred PCE gauge hitting 3.8% year-over-year, largely due to an energy price shock.

This signals a potential pivot in the Fed's conversation, moving from when to cut rates to whether policy needs to be held higher for longer or even hiked.

Kansas City Fed President Jeff Schmid recently stated that the Federal Reserve's current monetary policy is not “very restrictive,” signaling that further tightening may be needed if inflation does not cool down.

This comment arrives at a particularly sensitive moment. Recent economic data has shown a troubling re-acceleration in inflation. Both the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) price index—the Fed's preferred inflation gauge—rose to 3.8% year-over-year in April. A primary driver behind this surge has been a significant energy price shock, fueled by geopolitical tensions that caused oil prices to spike.

Schmid’s statement is the culmination of a clear sequence of events. First, the April inflation reports from the Bureau of Labor Statistics (BLS) and Bureau of Economic Analysis (BEA) provided concrete evidence that price pressures were reviving. Second, this was exacerbated by an energy crisis linked to international conflicts, which at times pushed Brent crude oil prices above $120 per barrel. This directly fed into higher gasoline and energy costs for consumers. Third, other influential Fed officials, like Governor Christopher Waller, had already started to publicly question the Fed's

Fed's Schmid Warns Policy Isn't 'Very Restrictive,' Hints at Hikes Amid Renewed Inflation

Kansas City Fed President Jeff Schmid argued that the current monetary policy is not restrictive enough to combat inflation, suggesting further tightening may be necessary.

His comments come as recent data shows inflation re-accelerating, with both CPI and the Fed's preferred PCE gauge hitting 3.8% year-over-year, largely due to an energy price shock.

This signals a potential pivot in the Fed's conversation, moving from when to cut rates to whether policy needs to be held higher for longer or even hiked.