Kansas City Fed President Schmid: Soaring oil prices may keep inflation near 3%

Federal Reserve officials’ language is beginning to shift, and the driving force behind it is energy. Kansas City Fed President Jeff Schmid warned in remarks delivered in Oklahoma City that the recent spike in oil prices tied to the conflict involving Iran should not be seen as a temporary phenomenon—especially when inflation has been above the target level for a long time. Weeks before he made these comments, policymakers kept interest rates unchanged at the March 17–18 meeting, when there was still uncertainty about how rising energy costs would feed through to the broader economy.

Schmid pointed to a transmission channel investors had already become familiar with: higher oil and gas prices permeate core inflation through categories such as airline tickets and transportation. Given that inflation has been above the Fed’s 2% target for about five years, he believes there is a risk that inflation will stabilize around 3% rather than falling significantly. At the same time, he acknowledged that the economy is still resilient, with growth and consumption remaining steady, even though hiring has been relatively weak; however, he said energy shocks could still cause a slight drag on growth.

The broader impact is that the policy path will become more complex. Schmid said that, given the overlapping effects of inflation and employment, at this stage he is placing more emphasis on inflation risks. This position echoes concerns expressed by other officials, even though Fed Chair Jerome Powell said it is still too early to determine the full impact of the rise in energy prices on the economy. For investors, this dynamic may mean that any rate-cut measures would still be conditional—especially if energy-driven inflation pressure begins to persist.

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Byline: Zhang Jun SF065