Fed's Schmid Rejects ‘Intrinsically Transitory' View of Inflation After Soft CPI

Kansas City Fed President Jeff Schmid pushed back on the idea that this week's softer June CPI print marks a turning point, warning Thursday that inflation remains too high and pressure is still broad-based. Prices are running at about double the Fed's 2% target, and the continued strength in the labor market makes the current level "concerning," Schmid said in a speech. He told the audience the central bank should not overreact to a single month's data, calling it "premature to put too much weight on a single data point relative to recent trends."

Schmid delivered his strongest public rebuke yet of the view that inflation fades on its own. "I am uncomfortable ever assuming that a burst of inflation is likely to be temporary," he said, adding that "inflation shocks are not intrinsically transitory." Relief from lower energy prices may be short-lived, he warned, because the price of oil is rising again, making it uncertain how long any relief on energy will persist. The remarks align with the Fed's stated need to see sustained evidence of easing inflation before any policy shift.

Schmid also defended clear communication from the Fed at a time when Chair Kevin Warsh has advocated a more restrained approach to forward guidance. "Independence demands accountability," Schmid said. The central bank must remain transparent about how it reaches decisions to preserve public confidence and avoid the perception of political influence, he said. His comments suggest officials will keep explaining their reasoning even if they speak less about the future path of rates.