Kansas City Federal Reserve President Jeffrey Schmid indicated that his primary current concern is inflation, given the potential for price increases to accelerate in the coming months.
Despite June inflation data coming in better than expected, Schmid cautioned that it is premature to conclude that a sustained decline in inflation has begun.
"I am most focused on inflation," Schmid stated during a speech at an economic forum on Thursday. "Inflation remains too high and has been above target for too long. Therefore, my focus remains on inflation when determining the appropriate direction for monetary policy."
Schmid noted that inflationary pressures are not limited to energy prices but are broad-based, encompassing a wide range of goods and services including food. He pointed out that food price increases remain above pre-pandemic average levels.
"On inflation, we still have some distance to cover relative to our target," Schmid said.
His remarks align with the stance of several other Federal Reserve officials this week. Multiple officials have indicated they are prepared to act if necessary to bring inflation back to the Fed's 2% target. Dallas Fed President Lorie Logan also argued for further interest rate hikes earlier on Thursday.
This week's releases of the Consumer Price Index (CPI) and Producer Price Index (PPI) both showed June price increases were lower than anticipated. Following the data, investors scaled back expectations for a Fed rate hike as soon as this month.
However, Schmid expressed disagreement with economic theories suggesting policymakers can ignore one-off price shocks. He believes such theories fail to adequately account for the role of demand factors.
"A lasting lesson from the pandemic is that inflation is never just a supply story; strong demand is almost always an important part of it," Schmid stated.
He offered a relatively optimistic assessment of the U.S. economy, describing the labor market as balanced and economic growth as remaining resilient.
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