Federal Reserve officials say that the rise in energy prices is not a temporary shock, and the risk of inflation expectations should not be taken lightly.

**汇通财经APP讯——**Kansas City Fed Chair Stephen Schmidt issued a clear warning Tuesday (March 31). He said policymakers should not simply assume that the impact of the current rise in energy prices on inflation is only temporary. As early as before the Iran war caused oil prices to surge sharply, the U.S. inflation rate had already been approaching 3%, and the process of rolling back toward the Fed’s 2% target has clearly stalled.

Schmidt Warns: Don’t Underestimate the Risks to Inflation Expectations

In remarks prepared for a speech for the Rotary Club of Oklahoma City, Schmidt pointed out: “I don’t think we can afford to treat the risks to inflation expectations lightly.” He added that although most indicators of medium- to long-term inflation expectations currently look quite stable, he is not reassured by that.

Schmidt said: “Right now, our job is to take policy action to verify these expectations.” While he did not specify what policy action he was referring to, it is widely believed that this statement suggests he may be inclined to maintain higher interest rates, and it also does not rule out the possibility of tightening policy in the future.

The Inflation Pullback Has Stalled, and the Energy Shock Is Making It Worse

Schmidt emphasized that before the Iran war broke out, the U.S. inflation rate had already been approaching 3%, and the process of rolling back to the 2% target had long slowed down or even stalled.

The sharp rise in current energy prices further intensifies inflation pressure. It will not only directly lift overall inflation, but may also raise core inflation excluding energy and food, and core inflation is viewed by the Federal Reserve as a key indicator that better reflects the path of future inflation.

Schmidt Has Repeatedly Opposed Rate Cuts, Taking Inflation Risks Seriously

Last year, Schmidt cast two votes against the Federal Reserve’s rate-cut decisions aimed at supporting the labor market. In his view, the U.S. labor market overall is already relatively balanced, and there is no need to provide additional support through rate cuts.

He believes higher oil prices would only cause a “modest drag” on economic growth, and he noted that this year’s higher tax refunds may, to some extent, offset the impact of rising gasoline prices on consumers’ spending. He said, “We should not underestimate the resilience of the U.S. economy.”

At the same time, however, he stressed that the inflationary impact of higher oil prices is obvious and must command a high degree of attention.

There Are Policy Differences Inside the Federal Reserve

Schmidt’s remarks stand in some contrast to the views of other officials within the Federal Reserve.

Many of his colleagues, including Fed Chair Jerome Powell, are also concerned that rising oil prices could cause inflation expectations to become unanchored. However, they typically lean toward waiting and watching for further developments, while also reminding that if consumers significantly cut other spending due to high oil prices, it would pose risks to economic growth and the labor market.

Schmidt, on the other hand, said explicitly that when weighing the threats facing the two goals of stabilizing prices and achieving full employment, he is currently “more concerned about the risks on the inflation side.”

Summary: The Federal Reserve’s Policy Direction Faces a New Test

Overall, Schmidt’s latest remarks from the Kansas City Fed have signaled a somewhat hawkish stance. He cautioned that Fed policymakers should not treat the inflation risks stemming from rising energy prices lightly, and that they must verify and anchor inflation expectations through actual policy actions. This view creates some tension with the market’s current expectations that the Federal Reserve will keep interest rates unchanged, and it also highlights different judgments within the Federal Reserve about policy orientation amid the current complex environment.

In the future, the Federal Reserve’s decisions will seek a balance between inflation pressure and risks to economic growth, and Schmidt’s remarks undoubtedly add an important voice to this discussion.

(Editor: Wang Zhiqiang HF013)

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