Schmid's Case for the Hike
According to Kansas City Fed President Jeff Schmid, the central bank has not yet finished addressing inflation, and he framed the most recent rate increase as progress toward that goal. He made the case that the issue extends past oil, pointing out that prices excluding energy have likewise been climbing quickly. Numerous goods and services, he added, have risen in ways inconsistent with the Fed's price stability objective. Schmid further said the labor market looks balanced and described economic growth as solid.[S1]
Schmid made his remarks on Friday, two days after officials delivered the first rate increase in over three years. Voting unanimously, they raised the federal funds rate target by a quarter percentage point, bringing it to a 3.75%-4% range, and proceeded despite President Donald Trump's calls to lower borrowing costs. Policymakers' median projection pointed to at least one more increase before the year is out. Fed Chairman Kevin Warsh said Wednesday the action took away some accommodation, reflecting a focus on the 2% inflation target. Schmid noted he likely would have backed a hike in July, when the committee voted 9-3 against changing rates.[S1]
FedNow Push and What to Watch
Most of Schmid's prepared remarks dealt with real-time payments. He encouraged banks to join FedNow, the Federal Reserve's system for instant transfers between banks. For ordinary investors, two threads are worth following: how the Fed communicates its next moves on inflation, and how many banks opt in to FedNow, which makes instant inter-bank transfers possible.[S1]
