

Market Analysis
Inflation remains too high, and the U.S. central bank must continue its efforts to reduce it, said Kansas City Federal Reserve Bank President Jeffrey Schmid on Tuesday. This indicates his support for maintaining the Fed's current policy rate for an extended period.
"Over time, I expect inflation to ease back towards the Fed’s 2% objective," Schmid remarked at the regional Fed bank's agricultural summit. "I am prepared to be patient as this process plays out."
Although inflation fell rapidly in 2023 from its mid-2022 peak, early 2024 saw a resurgence in price pressures. The personal consumption expenditures price index increased by 2.7% in March from the previous year, exceeding the Fed's 2% target.
"The Fed must hold back demand growth until supply catches up and the imbalance driving inflation closes," Schmid explained. He noted that the labor market, although cooling from a historic peak, still shows signs of easing imbalances.
Rising supplies of labor, goods, and services are aiding the Fed's efforts to control inflation. Nevertheless, Schmid emphasized the importance of not overreacting to individual data points.
"I prefer a steady policy approach that reduces financial market volatility rather than exacerbates it," he stated.
Schmid also mentioned that increased U.S. government borrowing and other long-term factors might keep interest rates elevated for some time.
With the Fed's policy rate in the 5.25%-5.5% range since last July, Schmid asserted, "Policy is in the correct place, and with patience, we are on a path to achieve our policy objectives. However, continued vigilance and flexibility are necessary as nothing is certain."
Earlier on Tuesday, Fed Chair Jerome Powell also expressed expectations that inflation would continue to decline towards the 2% goal, but suggested that maintaining the current policy rate for a longer period might be necessary. Similarly, Cleveland Fed President Loretta Mester indicated that while a rate hike is unlikely, it remains a consideration if inflation progress stalls.
Paraphrasing text from "Reuters" all rights reserved by the original author.