Kansas City Fed President Jeff Schmid Talks Fed Policy From Jackson Hole

**SPEAKER_1** (0:02)
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**Michael McKee** (0:07)
Inflation is basically back to where it was when the Iran War started. You didn't like it at that level then.
So I assume at this point, even the slight decline that we have seen in recent weeks is not good enough.

**Jeff Schmid** (0:21)
So first of all, welcome to Jackson Hole. It's always good to be back. It never gets old. Yeah. It's great to have you. Thank you. Yeah. So if I'm going to be consistent, and I was a voting member last year and descended a couple of times. At the time, even the last Q3, Q4 data for me last year was, I thought we certainly weren't restrictive and maybe even a little accommodative. So we've got work to do. There's a demand element underneath all of the supply conversation that gets talked about, that I just need to try to figure out. Because for me, we do a lot of informal surveying around the district. And I would say it's kind of a little bit like the FOMC meetings.
You've got a half of the people that say, well, it's certainly not restrictive.
It seems like it might be close to about right. But for me, I think it may be accommodative on the short end.

**Michael McKee** (1:22)
How do you measure that?

**Jeff Schmid** (1:24)
So it's a really good question. And look, the data sets are massive, right? I mean, what you've got to do, I think, and I even have a tendency to do this, is you've got to be careful about looking at one or two prints. You really have to be thinking about the macro over the micro. Because even in the district, I can get around to places.
And some communities are booming, some are just doing okay. I mean, I think even about industries, the cattle industry is booming, but the poultry industry is soft. And so you really do have to be thoughtful about that because what happens to me, and this has been my personal experience over the last three years is we got it to three sub three, and then it even gets harder because you don't want to overshoot with the policy rate decision. So you want some deflation down to two, but you don't want, you want deflation but not disinflation. And so that it gets harder, the decision gets harder. But for me, I think there's a lot of demand elements underneath this economy that I think a bit higher rate might make sense.

**Michael McKee** (2:32)
As soon as September 16th?

**Jeff Schmid** (2:34)
So I think for me, giving the chairman some room is important.
I think these task forces are going to be instructive. I think the FOMC is looking forward, in my opinion, to those. I think there were some of my colleagues dissented at the last meeting. So I would probably put myself in that camp. But here again, there's really good arguments on both ends of this policy decision. So let's get a little bit more data. Let's see what the task forces are going to say over the next successive meetings. Maybe there's a bit of a reset that we have to make. But for me, I think we're a little on the accommodative side.

**Michael McKee** (3:14)
Well, you probably can't make this official pronouncement, but would you assume, as most people do, that October 28th is off the table because it's too close to the election?

**Jeff Schmid** (3:25)
I don't think so, Mike. I think we had this discussion about independence. We get in that room. We are able to speak our truth about what we think the economy is doing. And I just don't think it enters into the equation. It certainly doesn't enter into my equation. We have a mandate. It's keep prices at 2% inflation and keep employment and labor full.
That's a pretty simple mandate. So I can at least offer my opinion around that and be hopeful that maybe other folks on the FOMC think the same.

**Michael McKee** (4:06)
If you're saying you don't need to raise rates necessarily immediately and you want to give the chairmen some room, what's the balance of risks to the economy, given that policy works, as we all know, with a lag?

**Jeff Schmid** (4:15)
It does, yeah. So that is the classic decisioning and debate, right? So here again, not to overshoot.
But here again, we're in the threes. I think that argument is better when we were in the mid-twos, and we were trending nicely. Well, then we had a couple shocks, and now we're trying to work through those shocks. But now you've got this really interesting dynamic of technology demand that's creating really issues with a lot of commodities, be it steel or copper. You've got this kind of flywheel of development around data centers and AI. That's creating some demand, and you're certainly creating some inflation underneath the energy shock side of things. So we've got to really make some hard decisions about can the policy rate affect those demand elements without pushing your economy into a slow growth or no growth area.