Fed’s Schmid Backed Rate Hike, Says Inflation Goes Beyond Energy

(Bloomberg) -- Federal Reserve Bank of Kansas City President Jeff Schmid said he supported this week's interest-rate increase as a necessary step to tame high inflation that's being driven by more than just rising oil prices.

Schmid said inflation excluding energy has "also been running hot," adding that a "broad range of goods and services" have also seen price growth inconsistent with the Fed's price stability mandate.

"The Fed has work to do on inflation and this week's action was a step in that direction," Schmid said Friday in remarks prepared for an event in Vail, Colorado. "Higher oil prices have been an important driver of elevated inflation, but it is important to acknowledge that our inflation problem is not just about energy."

Schmid said the labor market appears in balance and described economic growth as solid.

The Kansas City Fed chief spoke two days after policymakers lifted their benchmark rate for the first time in more than three years to help curb persistent inflation. Officials voted unanimously to raise the benchmark federal funds rate by a quarter percentage point to a range of 3.75% to 4%, bucking pressure from President Donald Trump to lower borrowing costs. The median forecast released by policymakers showed they see at least one more hike later this year.

Fed Chairman Kevin Warsh said Wednesday the rate increase "removed a dose of accommodation," and signaled officials are serious about achieving their 2% inflation target.

Schmid had previously said he probably would have supported a rate increase back in July, when officials voted 9-3 to leave their benchmark rate unchanged.

Schmid dedicated most of his remarks to real-time payments. He encouraged banks to participate in FedNow, a payments rail provided by the Fed that allows for instant inter-bank transfers.