Federal Reserve’s Schmid warns: Don’t take risks to inflation expectations lightly

Gate News message. On March 31, Fed member Schmid said in a speech on April 1 that people should not assume that rising energy prices will only have a temporary impact on inflation. Schmid noted that even before the war with Iran drove oil prices sharply higher, the inflation rate was already nearing 3%, and progress toward the Fed’s 2% inflation target had stalled. Schmid said, “I believe we cannot take lightly the risks faced by inflation expectations.” He also said that although most measures of medium- to long-term inflation expectations have remained stable, that doesn’t bring him much comfort—“Our task now is to take the corresponding policy actions to prove those expectations.” Schmid did not specify particular policy measures, but last year he had twice opposed the Fed’s decision to cut interest rates. Last week, financial markets reflected investors increasingly believing that a rise in oil prices could prompt the Fed to raise interest rates later this year to prevent inflation, but this week market views have shifted to believing the Fed will keep interest rates unchanged.