Fed Warns Energy Shock Will Fuel Persistent Inflation
Jeffrey Schmid, President of the Federal Reserve Bank of Kansas City, warned that the current energy shock will not be easily ignored due to already-hot levels of inflation. Speaking at a conference in Iceland, Schmid stated that his primary concern is inflation, which has been above target for too long.
The energy shock could have a more significant impact on pricing than previously thought, making it harder to assume the current increase will be transitory. Schmid emphasized that now is not the time to let down their guard, especially given how long inflation has been above the central bank's 2% target.
He suggested that the Fed may need to consider more restrictive monetary policy tools beyond interest rates. This could include re-examining the balance sheet and potentially implementing a new drawdown in Fed holdings to create headwinds for growth.