Inflation is most 'pressing risk' to US economy, Fed's Schmid says

Inflation is the biggest risk to a U.S. economy that has shown "remarkable resilience" in the face of numerous challenges, and the job market is stable, Kansas City Federal Reserve President Jeffrey Schmid said on Thursday.

"I see continued ⁠inflation as the most pressing ⁠risk to the economy," Schmid said in prepared remarks to a banking industry conference hosted by the Kansas City Fed. "While inflation has moderated significantly from its peak, in my discussions ⁠with business leaders across the Tenth District, it is clear that it is still too high."

Schmid, who is not a voter on monetary policy this year, did not comment on the outlook for interest rates. But his emphasis on inflation indicates that he remains squarely within the Fed's hawkish wing opposed to rate cuts as long as inflation continues running above target. Inflation by the measure the Fed uses to set its 2% target - the personal consumption expenditures price index - was ⁠running ⁠at 3.5% in March, the first month of the U.S.-Israeli led war against Iran that has triggered big jumps in global crude oil prices and U.S. gasoline prices. Other inflation readings this week for April suggest that headline PCE may have approached 4% last month and has widened beyond energy cost pressures.

"Though the U.S. economy currently faces a number of challenges, it has also shown remarkable resilience," ⁠Schmid said. "Geopolitical developments continue to create uncertainty. While the United States is less vulnerable to global energy disruptions than in the past, higher oil prices still drain household spending power and increase costs for businesses. Yet despite these headwinds, economic fundamentals in the U.S. and in the Tenth District remain sound."

Indeed U.S. gross domestic product growth picked up speed in the first ⁠quarter ‌on the ‌back of strong business investment - especially in the technology ⁠sector and artificial intelligence space - and continued ‌consumer spending. Schmid noted that wealth gains from a record-high stock market have helped many consumers, especially from upper-income ⁠households, lift their spending.

"Growth is positive, with economic output ⁠expanding at a modest but steady pace so far this year," ⁠Schmid said. "Unemployment remains relatively low by historical standards, and the labor market is functioning effectively - albeit in an unusual low-hire/low-fire environment."