Fed’s Schmid: Large fiscal deficits won’t cause inflation as Fed will raise rates

Jeffrey Schmid, president of the Federal Reserve Bank of Kansas, expressed optimism on Tuesday, saying he thinks both employment and inflation are moving toward their target levels. The Fed policymaker did, however, warn investors that although the Fed is not preparing any preventative measures for potential government policies in the upcoming year, it has more than enough gunpowder to prevent inflationary pressures from escalating government budgets and inflation-inducing immigration policies that could threaten the US’s next president.

Key Quotes

Rate cuts are an acknowledgment of fed’s confidence inflation is on a path to 2% target.

Large fiscal deficits will not cause inflation because the Fed will prevent it, though that could mean higher interest rates.

Now is the time to dial back restrictiveness of policy.

I see full employment, inflation trending lower and solid growth.

It is not my expectation that we’d see pre-pandemic rates.

Rates are still somewhat restrictive, but not overly so.

Until policy is enacted, it is not important to Fed discussions.

Coming tariff and immigration policies will be relevant to the Fed if they impact employment and inflation.