Fed's Schmid (2028 voter, Hawk) says inflation is the more salient risk for the Fed; can't be complacent about inflation expectations

Fed's Schmid emphasizes the persistent risk of inflation, suggesting a need for continued policy actions to stabilize inflation expectations.

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Fed's Schmid (2028 voter, Hawk) says inflation is the more salient risk for the Fed; can't be complacent about inflation expectations

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  • There is a real risk that inflation will get stuck closer to 3%. 
  • Fed must follow through with policy actions to validate stable medium- and long-term inflation expectations
  • US economic tailwinds include solid demand momentum, productivity gains, relatively low unemployment
  • Can't assume inflation from higher oil prices will be transitory
  • Expect 'modest drag' on economic growth from sustained higher oil prices
  • US economic resilience should not be underestimated
  • Higher energy prices will increase inflation, including core inflation
Context

This hawkish stance implies that traders should remain alert to potential rate hikes and consider how adjustments in monetary policy may influence the USD and broader markets, especially in the context of elevated energy prices affecting core inflation.

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