- My primary concern is inflation, which is too hot and has been above target for too long
- Now is not the time to let down our guard
- US economy is less exposed to energy shock relative to the past
- But I would place little shock in assuming that recent inflation surge is transitory
- Fed must signal commitment to lowering inflation
- The main focus is on getting inflation back to the 2% target
- Most economic indicators suggest continued steady growth
- Believes that the labour market is in balance, notwithstanding the potential disruptions of AI
- There is some evidence that AI is depressing hiring but it is not driving firing
Well, Schmid isn’t a voting member on the FOMC committee this year. So, his remarks will not bear as much weight. However, they are still worth taking note of as they do reflect the wider view of how the central bank is treating policy at the moment.
There’s definitely a more hawkish leaning starting to develop but we’ll have to see how Warsh wants to steer the conversation in the months ahead.
For now at least, traders are seeing the potential for a rate hike late in the year. Fed funds futures point to ~15 bps of rate hikes priced in by year-end and that signals a more hawkish tilt compared to recent weeks, as worries about inflation continue to permeate across broader markets. In particular, the drive higher in bond yields reflect caution and traders are certainly mirroring that when it comes to Fed pricing.
