By Howard Schneider
WASHINGTON (Reuters) – Recent surveys showing a rise in consumer inflation expectations mean the U.S. central bank needs to keep its focus on ensuring price pressures are fully contained, Kansas City Federal Reserve President Jeff Schmid said on Thursday, highlighting a growing and potentially troubling issue for policymakers.
“The last two months have seen a sharp upward movement in some measures of expected inflation,” Schmid said in remarks prepared for delivery at a federal agriculture conference. “Certainly, survey measures of inflation expectations are imperfect and subject to noise, but with inflation just recently at a 40-year high, now is not the time to let down our guard.”
Beyond expectations, which the Fed monitors closely for signs of a shift in public psychology that can drive prices higher, Schmid, a voting member of the central bank’s policy-setting committee this year, said inflation data itself has been largely stuck above the Fed’s 2% target.
Yet at the same time, he said there are signs that elevated uncertainty about the economy’s direction may lead to weaker growth, posing a difficult choice between bolstering the economy with weaker monetary policy or ensuring inflation returns to target and expectations remain contained.
“I intend to keep my eye focused on inflation,” Schmid said. “I am not willing to take any chances when it comes to maintaining the Fed’s credibility on inflation.”
New inflation data is due to be released on Friday that is expected to show the increase in the Personal Consumption Expenditures Price Index eased in January.
Fed policymakers are expected to hold interest rates steady at their meeting next month as they await more clarity on the path of inflation and the impact of Trump administration policies, including on tariffs and immigration.
(Reporting by Howard Schneider; Editing by Paul Simao)
