Kansas City Federal Reserve President Jeff Schmid said in an interview on Wednesday, the eve of the central bank's annual economic summit in Jackson Hole, Wyo., that interest rates are too accommodative, amid inflation that remains too hot.
"We haven't achieved our mandated goal of 2%," Schmid told Yahoo Finance. "I'm a very strong believer that if we're going to have a scorecard for the Fed, it's got 2% inflation, it's got stable prices on it. We're not there."
"So the question becomes, and it's the debated question, is the short-term policy rate too accommodative or restrictive? And I would say it's very accommodating."
Schmid pointed to what he called three "thoughtful" dissents at the Fed's July policy meeting and noted that he would have sided with the narrative that inflation is too high and action is needed now to ensure that more severe rate hikes aren't needed later. Schmid, who is not a voting member of the Federal Open Market Committee this year, dissented twice last year at the last two meetings against rate cuts, arguing inflation remained too high.
"I dissented late last year. I'm still consistent with [that]," he said.
Schmid acknowledged higher energy prices being driven up by the conflict in the Middle East, but said he is more focused on the inherent demand in the economy and how much that is driving inflation.
"I'm more interested in the demand features," said Schmid, pointing to demand for certain commodities along with technology for building out data centers. He also noted that it's not just large technology companies driving up demand for materials, but also that medium and small businesses are part of that.
Schmid underscored the significant runup of 20% to 30% in agriculture commodities in the last few weeks, saying that's "going to have another inflationary element" and that "there must be demand."
"The policy rate can affect certain demand features of the economy, and so we've got to dig deeper outside of the headline supply shock elements and find out what can we affect with demand with our policy rate," he said.
Schmid seemed to brush off the prospect of renewed tariffs between the US and Canada, noting that they're a small part of a $30 trillion-plus economy.
"It's a big stew," he said. "That's a piece of the stew. I think there's a lot bigger dynamics happening that could influence a few micro elements of the economy, but frankly there's much larger macro things that are happening from a demand basis."
Schmid noted the latest reading on the Fed's preferred inflation gauge, the Personal Consumption Expenditures index, released Wednesday "didn't inspire that we're making progress." PCE rose 3.3% in July on a "core" basis, which excludes volatile food and energy prices. Month over month, prices rose 0.2%, up from 0.1% in June.
"The next question is, will a policy increase of 25 or 50 basis points matter? It probably moves behaviors, and I think that's what you're after," he said.
When asked whether he believes the Fed needs to raise rates by that amount, he said, "we'll see."
"At some point, this reaction that the Fed needs to have when it sees data that's counteractive to the inflation rate, we need to have that reaction function and it needs to matter and the one tool we have is policy rate," he said.
Fed Chairman Kevin Warsh, during his press conference in July, repeatedly pointed to bond yields shooting materially higher, suggesting it was a good thing and implying that the Fed welcomes higher yields to tighten policy through markets. This response initially triggered higher long-term bond yields, but ultimately led to confusion and a loss of market confidence in the Fed's strategy.
Schmid, though he implied a desire for higher rates, said he's interested in giving Warsh some space, including an opportunity to allow the task forces he's established to work.
The task forces are exploring ways to improve Fed communication, how the Fed scrutinizes inflation, productivity and jobs, data sets and the Fed's balance sheet. Schmid said he thinks the groups will produce valuable research that could provide data informing policy decisions, how the Fed communicates, and the balance sheet.
"All those things are time-driven, and so I think there's space and time, but we have to really emerge from those discussions to get more information … and try to figure out what our next actions are as an FOMC," he said.
When asked whether the Fed needs a new inflation framework, Schmid said he's not sure there's a better measure than PCE. He noted that he's interested to see what the data task force comes up with because he has a keen interest in finding ways technology can drive more real-time data.
"I've just got to believe that we can ... get better at more data sets and we have to synthesize that data in more real time," he said.
Minutes from July revealed that Warsh floated the idea of scaling back the number of FOMC meetings per year to six from eight and potentially using the other two for discussions of broader topics.
"I think there's some legs to that," Schmid said. "I think you get more data sets in between meetings, and that's always helpful because what you're looking for is not one print. You're looking for a trend as you make your policy decisions. I like the time and space that it creates."
Schmid noted that he doesn't necessarily need more meetings, but what he needs is interaction with his colleagues on the Fed. He calls himself a "transmitter and receiver of information" who finds out what the economic conditions are in his district and brings that perspective back to the committee.
"Bringing that information together and the more information I have, the smarter I'm going to be at the table," he said. "I'll use [the extra time] to just generate more information to make a better decision."
Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance, she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.