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The battle against rising prices is not over, one of the newest top Federal Reserve officials said Monday.
“When it comes to too-high inflation, I believe we are not out of the woods yet,” Kansas City Fed President Jeff Schmid said in his first public speech since joining the central bank six months ago.
Progress on inflation has been encouraging but has “largely” been driven by reductions in energy and goods prices, he said.
That might not last.
Residents of the Kansas City Fed district know that energy prices “are anything but stable,” Schmid said. And turmoil in the Middle East could put pressure on supply chains and affect the prices of goods.
That means further progress on inflation might have to come from lower prices for services, Schmid said. But the January CPI data showed that prices of services “continue to rise briskly amid still-tight labor markets and elevated wage growth,” he noted.
Schmid started his career as a Fed bank examiner in 1981 and went on to serve as CEO of several banks. He will be a voting member of the Fed’s interest-rate committee in 2025.
His caution about inflation fit with recent remarks from other top Fed officials.
“Recent Fedspeak has sent a clear signal that, although the policy rate has likely peaked and rate cuts are expected to commence this year, officials are not in a rush to lower rates,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank.
Luzzetti floated the idea that the Fed would cut in a “two-stage process,” with a few quarter-point cuts followed by a potentially lengthy pause.
Many economists think the Fed will delay their first cut until June. At the start of the year, the betting in financial markets had been that the first cut would come in March.
Stocks
DJIA
SPX
closed lower Monday and the yield of the 10-year Treasury note
BX:TMUBMUSD10Y
inched down to 4.281%.
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