- Interest rates are not restraining the US economy
- Midterms won’t affect Fed’s October decision
- I don’t see Fed’s credibility as damaged in recent weeks
- I would probably have supported rate hike at July meeting
- Unclear what policy setting is restricting right now
- Energy shock is leaking into economy
- The Fed needs to get to 2% inflation
- There may be room to have fewer FOMC meetings
Kansas City Fed President Jeffrey Schmid maintained his hawkish stance arguing that current interest rates are not restraining economic activity and reiterating Fed’s goal of returning inflation to the 2% target.
He also noted that it’s unclear what interest rate setting is need to restrain the economy enough to bring inflation back to target. He added that he would have supported a rate hike at the July FOMC meeting if he was a voter (he’s not currently a voter until 2028).
Schmid dismissed the rumors about lack of Fed independence and said that the US midterm elections won’t influence monetary policy decisions. He argued that Fed’s credibility has not been damaged in recent weeks.
He warned that energy costs are beginning to spill over into the economy, which could warrant a tighter monetary policy to lean against inflationary pressures. He also sounded positive about the Fed potentially having fewer scheduled FOMC meetings (Fed Chair Warsh proposed six meetings per year).
Overall, there’s nothing in his comments to move the markets as his hawkish stance is well known, and traders are waiting for Fed Chair Warsh’s speech tomorrow. As of now, traders are pricing in just 35% probability of a rate hike in September. That will be influenced by US-Iran developments, Fed Chair Warsh’s speech and the next US CPI report on September 11.
This article was written by Giuseppe Dellamotta at investinglive.com.