①Jeffrey Schmid, President of the Federal Reserve Bank of Kansas City, stated on Thursday that inflation is the biggest risk facing the U.S. economy; ②His emphasis on inflation indicates that he remains firmly in the hawkish camp of the Federal Reserve.
Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, said on Thursday that inflation is the biggest risk facing the U.S. economy. However, the U.S. economy has demonstrated 'extraordinary resilience' in the face of numerous challenges, and the labor market remains stable.
In a speech at a banking conference hosted by the Kansas City Fed, Schmid said: "I believe persistent inflation is the most pressing risk facing the current economy. Although inflation has significantly receded from its peak, my conversations with business leaders in the Tenth District reveal that inflation levels remain too high."
"Despite the many challenges currently facing the U.S. economy, it has demonstrated extraordinary resilience. Geopolitical tensions continue to create uncertainty. While the U.S. is less vulnerable to global energy disruptions than in the past, higher oil prices still erode household purchasing power and increase business costs. However, even in the face of these headwinds, the economic fundamentals of the U.S. and the Tenth District remain solid," Schmid said.
In fact, thanks to robust business investment, especially in technology and artificial intelligence, as well as continued consumer spending, the growth rate of the U.S. Gross Domestic Product (GDP) accelerated in the first quarter. Schmid pointed out that the wealth gains from record-high stock markets have helped many consumers, particularly those in high-income households, increase their spending.
"Economic growth is positive, with economic output expanding at a moderate but steady pace since the beginning of this year. The unemployment rate remains relatively low by historical standards, and the labor market is proceeding smoothly—despite being in an unusual environment of 'low hiring, low layoffs,'" Schmid said.
Schmid does not have voting rights on monetary policy this year. He did not comment on the interest rate outlook this time, but his emphasis on inflation indicates that he remains firmly in the hawkish camp of the Federal Reserve: opposing interest rate cuts as long as inflation remains above target levels.
Data released by the U.S. Department of Labor on Tuesday showed that with gasoline and grocery costs continuing to rise, the U.S. Consumer Price Index (CPI) increased by 3.8% year-on-year in April, reaching the highest level since 2023. Core CPI (excluding food and energy) rose by 2.8% year-on-year, the highest since September 2025.
Current Federal Reserve Chair Powell will end his eight-year term this Friday (May 15), when Kevin Warsh, nominated by U.S. President Trump, will take over as head of the Federal Reserve.
As the Federal Reserve is about to change leadership, Fed officials have successively issued "hawkish" signals. This suggests that Warsh's path as the new Federal Reserve Chair will be challenging from the start, as Trump hopes he can push for interest rate cuts after taking office.
Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, reiterated on Wednesday that inflation is currently too high and needs to be brought back to 2%.
Susan Collins, President of the Federal Reserve Bank of Boston, also warned on the same day that if inflationary pressures persist without relief, the Federal Reserve may need to raise interest rates again.
Aubhik Goolsbee, previously known as a dove within the Federal Reserve and currently President of the Federal Reserve Bank of Chicago, pointed out on Tuesday this week that 'inflation is moving in the wrong direction, and this incorrect movement is not only evident in areas related to oil but also not limited to those associated with tariffs.'
However, John Williams, the 'third-ranking official' of the Federal Reserve and President of the Federal Reserve Bank of New York, stated on Thursday that the current monetary policy is in a good position, with neither the need for rate hikes nor justification for rate cuts. He noted that economic data overall aligns with expectations, inflation is steadily moving toward its target, and the labor market remains resilient.
According to CME's 'FedWatch,' the probability of the Federal Reserve maintaining interest rates unchanged by June stands at 96.8%, while the likelihood of a cumulative 25-basis-point rate cut is 3.2%. By July, the probability of keeping rates unchanged is 93.8%, with a cumulative 25-basis-point rate cut at 3.1% and a cumulative 25-basis-point rate hike also at 3.1%.
Editor/Joe