On Tuesday, Jeffrey R. Schmid, President of the Federal Reserve Bank of Kansas City, stated that inflation is still too high and that the Federal Reserve still has more work to do in reducing inflation, and hinted that he supports maintaining policy interest rates unchanged for a period of time.
"As time goes by, I expect inflation to fall back to the Federal Reserve's target of 2%," he said in his latest speech. "I am prepared to remain patient in this process."
The inflation rate has rapidly fallen from its peak in mid-2022 since last year, and Federal Reserve policymakers had originally expected a significant interest rate cut this year to prevent policy from becoming too tight. But price pressure rose again in the first quarter, with the Consumer Price Index (CPI) rising by 2.7% in March compared to the same period last year. The Federal Reserve's last mile away from its 2% inflation target seems to be very difficult.
Schmid said, "The Federal Reserve must curb demand growth until supply catches up and drives the end of inflationary imbalances."
Faced with the Federal Reserve's rapid interest rate hikes from 2022 to 2023, there are signs that the imbalance is easing - the labor market, he pointed out, "has come out of the historic boiling."
The increase in the supply of labor, goods, and services has also made it easier for the Federal Reserve to cope with inflation. However, Schmid said that the Federal Reserve should not place too much emphasis on any data.
"I prefer to adopt prudent policies to suppress rather than exacerbate the volatility of financial markets," he added.
He also said that the increase in US government borrowing and other long-term factors mean that interest rates may remain high for a period of time.
Schmid stated that since July last year, the Federal Reserve's policy interest rate has remained in the range of 5.25% -5.5%. "Policy is in the right position, and as long as we have patience, we will be on the path to achieving policy goals. However, nothing is certain, and continued vigilance and flexibility are necessary."
This is consistent with the latest remarks by Federal Reserve Chairman Jerome Powell on Tuesday. He said that the Federal Reserve needs to remain patient and wait for more evidence of "high interest rates suppressing inflation", so the bank will maintain borrowing costs at a higher level.
Powell reiterated that it may take longer than previously expected to gain the confidence needed to lower interest rates, which is consistent with his remarks at the Federal Reserve's early month resolution press conference. He emphasized that the next step for the bank is unlikely to be to raise interest rates, and it is more likely to maintain policy interest rates at the current level. "The question may only be how long it will take to maintain this position.".
"From many aspects, the current policy interest rates are restrictive, and time will prove whether there is enough restrictive," he said.
Cleveland Federal Reserve Bank President Loretta Mester had previously stated that they believed there was little possibility of a rate hike, but Mester said that if inflation stagnates, Federal Reserve decision-makers will need to consider raising rates.