Inflation is the biggest risk to the American economy that has shown “remarkable resilience” in the face of numerous challenges amid the stable job market, said Kansas City Federal Reserve President Jeffrey Schmid.
“I see continued inflation as the most pressing risk to the economy. While inflation has moderated significantly from its peak, in my discussions with business leaders across the Tenth District, it is clear that it is still too high,” Schmid said in prepared remarks to a banking industry conference hosted by the Kansas City Fed.
Schmid, who is not a voter on monetary policy in 2026, did not comment on the outlook for interest rates. But his emphasis on inflation indicates that he remains squarely within the Fed’s hawkish wing opposed to rate cuts as long as inflation continues running above target.
Inflation, by the measure the Fed uses to set its 2% target, the personal consumption expenditures price index, was running at 3.5% in March, the first month of the US-Israeli war against Iran, which has triggered big jumps in prices of global crude oil and US gasoline. Other inflation readings for April suggest that headline PCE may have approached 4% last month and has widened beyond energy cost pressures.
“Though the US economy currently faces a number of challenges, it has also shown remarkable resilience. Geopolitical developments continue to create uncertainty. While the United States is less vulnerable to global energy disruptions than in the past, higher oil prices still drain household spending power and increase costs for businesses. Yet despite these headwinds, economic fundamentals in the US and in the Tenth District remain sound,” Schmid said.
Indeed, US GDP growth picked up speed in the first quarter on the back of strong business investment, especially in the technology sector and artificial intelligence space, and continued consumer spending. Schmid noted that wealth gains from a record-high stock market have helped many consumers, especially from upper-income households, lift their spending.
“Growth is positive, with economic output expanding at a modest but steady pace so far this year. Unemployment remains relatively low by historical standards, and the labour market is functioning effectively – albeit in an unusual low-hire/low-fire environment,” Schmid said.