MNI: Fed's Schmid Sees Risk Of Inflation From Overheating

The Federal Reserve cannot afford to be complacent on inflation when demand continues to run hot, Kansas City Fed President Jeffrey Schmid said Tuesday, adding AI and other supply-side factors aren't yet offsetting those pressures. 

"With inflation still running hot, it appears that demand is outpacing supply across much of the economy. I remain open to the possibility, and I’m even optimistic, that AI and other innovations will eventually lead to a non-inflationary, supply-driven growth cycle. In fact, AI might be necessary to offset the drain on growth from a smaller workforce. However, based on the current rate of inflation, we are not there yet," he said in remarks prepared for the Metro Denver Executive Club. 

Tariffs have boosted goods prices and services inflation is running strong, he said. The aging workforce is supporting growth in the near-term, driving hiring and consumption in health care, Schmid said. 

"Higher labor costs and relatively moderate price increases have increased pressure on margins in the sector, certainly something I have been hearing about from contacts in the industry. And there is considerable risk that further increases in prices and inflation might be forthcoming," he said. (See: MNI INTERVIEW: Uncertainty Dominates US Hiring Outlook -Indeed)

"Inflation has been above the Fed’s objective for nearly five years now. I don’t think we have room to be complacent."