Schmid Urges Fed Action on Iran War Inflation

Schmid stated the economy's fundamentals remain solid, but inflation was already too far above the Fed's 2% target even before the war began at the end of February. He emphasized the Fed must proactively address elevated inflation to prevent it from getting stuck near 3% in the long run.

While consumer and investor surveys show little concern about long-term high inflation, Schmid warned against complacency, asserting the Fed's earned credibility requires validating expectations with policy actions. Schmid's call for inflation-fighting policy actions aligns him with Chicago Fed President Austan Goolsbee, who also indicated a potential interest-rate boost could be necessary if inflation remains problematic.

Conversely, most Fed officials currently signal a preference to hold rates steady at 3.5% to 3.75%, waiting to assess the war's economic impact. Fed Chair Jerome Powell signaled no rush to adjust policy on Monday.

Schmid acknowledged higher oil prices could hurt economic growth but maintained inflation risks are his primary concern, arguing U.S. energy production, efficiency, and economic momentum could insulate the economy from a downturn. Wall Street initially expected a rate-cutting cycle to continue from 2024, but futures markets now indicate traders anticipate the Fed's rate target will end 2026 flat.