Kansas City Fed chief questions whether the current 3.5%–3.75% rate target is doing enough to slow inflation
Kansas City Federal Reserve President Jeffrey Schmid used his Jackson Hole, Wyoming appearance Thursday to deliver a blunt verdict on the inflation fight: the central bank's current policy rate may not be working.
Speaking on CNBC's "Squawk Box," Schmid said price pressures have proven resilient.
"It's still stubborn and it's still sticky, and we've got to continue to find ways to break through," he said.
"We're going to have our work cut out for us as we move into the [Federal Open Market Committee] cycle."
Rate policy not delivering needed restraint
The remarks came one day after the Commerce Department reported that core personal consumption expenditures (PCE) — the Fed's preferred inflation gauge, excluding food and energy — rose 3.3% year-over-year.
Headline PCE held at 3.7% through July, down from 4.1% in May, but still well above the central bank's 2% target.
With second-quarter GDP growth at 1.5% and unemployment at 4.1%, Schmid questioned whether the Fed's 3.5% to 3.75% policy rate is constraining economic activity at all.
"I don't know what we're restricting currently with the rate policy that we're at today," he said. He stopped short of endorsing a rate increase at the September 15–16 FOMC meeting.
"I think we need a little bit more information. What I'm trying to figure out is the demand side of what's driving both growth and inflation," Schmid said.
Schmid does not hold a formal FOMC vote this cycle. When he voted in 2025, he dissented twice against rate cuts. His comments arrive as the Fed's July decision produced its most hawkish split in years — three regional presidents backed an immediate quarter-point hike: Cleveland's Beth M. Hammack, Minneapolis's Neel Kashkari, and Dallas's Lorie K. Logan.
Both Schmid and St. Louis Fed President Alberto G. Musalem indicated they would have backed the same. Futures markets lean against a September hike but assign a meaningful probability to one by year-end 2026.
Goolsbee sounds the alarm; all eyes on Warsh
Chicago Fed President Austan Goolsbee echoed the concern Thursday on the Rapid Response podcast.
"Everybody should be on edge, and I would say my biggest fear in the short run continues to be that inflation is not under control," he said.
Goolsbee flagged energy costs tied to the conflict in Iran and ongoing tariff volatility as compounding household pressures, warning that entrenched expectations of above-target inflation become progressively harder to reverse.
Attention now turns to Fed Chair Kevin Warsh, set to address Jackson Hole on Friday. Warsh has largely declined to offer firm forward guidance on the path of Federal Reserve interest rates since taking the chairmanship, and has floated reducing FOMC meetings from eight to six annually, a proposal Schmid said he sees "some room" to consider.
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