Kansas City Fed's Schmid favors higher rates to bring down inflation
Jennifer Schonberger · Senior Reporter
Wed, August 5, 2026 at 3:09 PM GMT+3 3 min read
Kansas City Federal Reserve president Jeff Schmid said Tuesday night that inflation is too high and bringing it down will require higher interest rates.
"Given the strength of demand and investment, I do not see the current stance of monetary policy as restrictive," Schmid said in a speech in Omaha, Neb. "As such, I believe that bringing inflation down to the Fed's 2% objective will require tighter policy."
Schmid, who won't be a voting member of the Federal Open Market Committee until 2028, said while the most recent inflation data for June showed an encouraging deceleration, it would be premature to put too much weight on a single data point over recent trends.
The Personal Consumption Expenditures index clocked in at 3.3% in June on a "core" basis, which excludes volatile food and energy prices. That's down a tenth of a percentage point from 3.4% in May. Month over month, core PCE increased 0.1%, down from 0.3% in May. On a headline basis, PCE rose 3.7%, down from 4.1% in May.
He noted that volatile oil prices both pushed inflation up in prior months and contributed to the June decline.
"With the price of oil once again rising, it is uncertain how persistent any relief on energy will be," Schmid said.
Read more: How oil price shocks ripple through your wallet, from gas to groceries
But Schmid stressed that higher inflation isn't solely about energy. He noted that over the previous 12 months, inflation excluding energy was 3.2%, about half a percentage point higher than where it stood in June of last year.
He also cautioned against chalking up high inflation to supply shocks alone. The economy has undergone a series of supply shocks — first with the pandemic, then an oil price surge after Russia invaded Ukraine, then tariffs, and now another increase in oil prices with the Mideast.
Schmid argued that inflation is the result of the balance of supply and demand. Unless demand is strong, he said, there probably won't be a run-up in prices. Strong demand is what creates the necessary backdrop for a supply disruption to lead to large price increases.
"A supply shock has a far different effect on inflation when demand is strong than when demand is weak," he said.
Schmid pointed to recent work by Kansas City Fed staff suggesting that, although energy shocks have historically had only a temporary effect on inflation and inflation expectations, this is because the Fed has responded to such price pressures.
Schmid also made the point that the best measure of inflation is the Personal Consumption Expenditures index because it best reflects purchasing power.
"The Fed's role is not to affect the price of any one good or service, but rather to maintain the aggregate purchasing power of the dollar relative to all goods and services in the economy," Schmid said.
"An aggregate price index, such as the PCE index, is the best measure of this purchasing power and should be the target of Fed policy."
Fed Chairman Kevin Warsh has appointed a task force to consider using different measures of inflation, including trimmed means, which eliminate outliers.
Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance, she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.
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