Inflation at Risk of Getting Stuck Near 3%, Kansas City Fed’s Schmid Sounds the Alarm

In a pointed warning that underscores the Federal Reserve’s ongoing struggle with price stability, Kansas City Fed President Jeff Schmid cautioned that U.S. inflation could become entrenched at levels close to 3%. Speaking in Oklahoma City, Schmid argued that the recent surge in oil prices—driven by geopolitical tensions in the Middle East—should not be dismissed as a temporary shock.


Inflation Was Already Elevated


Schmid emphasized that inflationary pressures were mounting well before the latest oil spike. For nearly five consecutive years, consumer prices have remained above the Fed’s 2% target, eroding confidence in the central bank’s ability to restore stability. “This oil shock arrives at a time when inflation has already been too high for far too long,” he noted, highlighting the risk that energy-driven price increases could spill over into core inflation.


The Risk of a 3% Plateau


The Kansas City Fed chief described inflation as the most pressing challenge facing policymakers. He warned that the economy faces a genuine risk of settling at a 3% inflation rate, a level that would undermine the Fed’s credibility and complicate long-term planning for businesses and households. Rising energy costs, he argued, will inevitably feed into broader price pressures, making it dangerous to assume the current wave will fade quickly.


A Hawkish Stance on Policy


Schmid’s remarks align with his reputation as one of the Fed’s more hawkish voices. He opposed last year’s interest rate cuts and supported keeping rates unchanged in the most recent meeting. With oil prices climbing above $110 per barrel, markets have now priced in more than a 50% chance of another rate hike before the end of 2026—the highest probability in two years. This shift reflects growing concern that inflationary forces may overwhelm the Fed’s cautious approach.


Waiting for April


For now, the central bank remains in a holding pattern, awaiting its next policy meeting at the end of April. Current projections suggest only one rate cut this year, but Schmid’s warning casts doubt on even that modest easing. Unless oil prices retreat or geopolitical tensions subside, the Fed may be forced to reconsider its path, balancing the risks of slowing growth against the danger of inflation becoming entrenched.