Kansas City Fed President Jeff Schmid Talks Fed Policy From Jackson Hole

Federal Reserve Bank of Kansas City President Jeff Schmid said monetary policy may be accommodative rather than restrictive, citing underlying demand pressures that could justify a rate hike as soon as September 16. Schmid rejected the idea that the October 28 meeting is off the table due to the midterm election. Speaking with Bloomberg's Michael McKee on the sidelines of the Jackson Hole Economic Symposium, he also addresses the future of the central bank’s communications and meeting schedules.

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Speaker 1: Bloomberg Audio Studios.

Speaker 2: Podcasts. Radio. News.

Speaker 1: Inflation is basically back to where it was when the

Speaker 1: Iran war started. You didn't like it at that level then.

Speaker 1: So I assume at this point even the slight decline

Speaker 1: that we have seen in recent weeks is not good enough.

Speaker 2: So first of all, welcome to Jackson Hole. It's always

Speaker 2: good to be back. It never gets old, does it?

Speaker 2: It's great to have you. Thank you. So if I'm

Speaker 2: going to be consistent and I was a voting member

Speaker 2: last year and dissented a couple times. At the time,

Speaker 2: even the last Q3, Q4 data for me last year,

Speaker 2: I thought we certainly weren't restrictive and maybe even a

Speaker 2: little accommodative. So we've got work to do. There's a

Speaker 2: demand element underneath all of the supply conversation that gets

Speaker 2: talked about that I just need to try to figure

Speaker 2: out because... For me, we do a lot of informal

Speaker 2: surveying around the district, and I would say it's kind

Speaker 2: of a little bit like the FOMC meetings. You've got

Speaker 2: a half of the people that say, well, it's certainly

Speaker 2: not restrictive. It seems like it might be close to

Speaker 2: about right, but for me, I think it may be

Speaker 2: accommodative on the short end.

Speaker 1: How do you measure that?

Speaker 2: So it's a really good question. And look, the data

Speaker 2: sets are massive, right? I mean, what you've got to do,

Speaker 2: I think, and I even have a tendency to do this,

Speaker 2: is you've got to be careful about looking at one

Speaker 2: or two prints. You really have to be thinking about

Speaker 2: the macro over the micro. Because even in the district,

Speaker 2: I can get around to places and some communities are booming,

Speaker 2: some are just doing okay. I mean, I think even

Speaker 2: about industries, the cattle industry is booming, but the poultry

Speaker 2: industry is soft. And so you really do have to

Speaker 2: be thoughtful about that because what happens to me, and

Speaker 2: this has been my personal experience over the last three

Speaker 2: years is we got it to three sub three. And

Speaker 2: then then there's, it even gets harder because you don't

Speaker 2: want to overshoot with, with the policy rate decision. So

Speaker 2: you want some deflation down to two, but you don't want,

Speaker 2: you want deflation, but not disinflation. And so, so that, that,

Speaker 2: it gets harder. The decision gets harder. But for me,

Speaker 2: I think there's a lot of demand elements underneath this

Speaker 2: economy that I think a bit higher rate might make sense.

Speaker 1: As soon as September 16th?

Speaker 2: So I think for me, giving the chairman some room

Speaker 2: is important. I think these task forces are going to

Speaker 2: be instructive. I think the FOMC is looking forward, in

Speaker 2: my opinion, to those. I think there were some of

Speaker 2: my colleagues descended at the last meeting. So So I

Speaker 2: would probably put myself in that camp. But here again,

Speaker 2: there's really good arguments on both ends of this policy decision.

Speaker 2: So let's get a little bit more data. Let's see

Speaker 2: what the task forces are going to say over the

Speaker 2: next successive meetings. Maybe there's a bit of a reset

Speaker 2: that we have to make. But for me, I think

Speaker 2: we're a little on the accommodative side.

Speaker 1: Well, you probably can't make this official pronouncement, but would

Speaker 1: you assume, as most people do, that October 28th is

Speaker 1: off the table because it's too close to the election?

Speaker 2: I don't think so, Mike. I think we have this

Speaker 2: discussion about independence. We get in that room. We are

Speaker 2: able to speak our truth about what we think the

Speaker 2: economy is doing. And You know, I just don't think

Speaker 2: it enters into the equation. It certainly doesn't enter into

Speaker 2: my equation. We have a mandate. You know, it's keep

Speaker 2: prices at 2% inflation and keep employment and labor full.

Speaker 2: That's a pretty simple mandate. So I can at least

Speaker 2: offer my opinion around that and be hopeful that maybe

Speaker 2: other folks on the FOMC think the same.

Speaker 1: If you're saying you don't need to raise rates necessarily

Speaker 1: immediately and you want to give the chairman some room,

Speaker 1: what's the balance of risks to the economy given that

Speaker 1: policy works, as we all know, with a lag?

Speaker 2: It does, yeah. So that is the classic decisioning and debate, right?

Speaker 2: So here again, not to overshoot. But here again, we're

Speaker 2: in the threes. I think that argument's better when we

Speaker 2: were in the mid twos. and we were trending nicely. Well,

Speaker 2: then we had a couple shocks, and now we're trying

Speaker 2: to work through those shocks. But now you've got this

Speaker 2: really interesting dynamic of technology demand that's creating really issues

Speaker 2: with a lot of commodities, be it steel or copper.

Speaker 2: You've got this kind of flywheel of development around data

Speaker 2: centers and AI. That's creating some demand, certainly creating some

Speaker 2: inflation underneath the energy shock side of things. So we've

Speaker 2: got to really make some progress hard decisions about can

Speaker 2: the policy rate affect those demand elements without pushing your

Speaker 2: economy into a slow growth or no growth area.

Speaker 1: Well, two questions here. And the first one is, does

Speaker 1: the Fed have a credibility issue? There's a lot of

Speaker 1: talk on Wall Street that it might.

Speaker 2: Well, for me, I just don't see it. I mean,

Speaker 2: I think if you look at the two great cycles

Speaker 2: that challenged the Fed, be it the post-08 and the

Speaker 2: post COVID cycle. You know, we might have missed a

Speaker 2: few things early in the 21-22 cycle, but we used

Speaker 2: policy rates to try to push inflation down. We were

Speaker 2: trending pretty well. I think we were doing our job.

Speaker 2: I think we were thoughtful in some of those moments

Speaker 2: where the labor force was structurally changing, which it still is.

Speaker 2: And so for me, I think we're doing our job.

Speaker 2: We just haven't gotten to the point where we can say, hey,

Speaker 2: we're at a good place Maybe reminiscent of kind of

Speaker 2: the cycle of the 90s where you get inflation down

Speaker 2: to 2%, you have full employment, and then you start

Speaker 2: to use your policy rate in kind of a cycle

Speaker 2: and wave to just keep the economy moving along well.

Speaker 1: Well, the second part of that question then is, does

Speaker 1: Kevin Warsh need to do something to satisfy the bond vigilantes?

Speaker 2: Well, look, I've really appreciated getting to know Chairman Warsh

Speaker 2: since he came around. I think he has a large

Speaker 2: imprint in his career about what he believes and what's important,

Speaker 2: how he views the Fed's mission. And so I think

Speaker 2: every time that he has an opportunity to speak, I

Speaker 2: think he's going to add to the discussion about how

Speaker 2: do we fulfill our mandate. because he believes strongly in it.

Speaker 2: So I'm, like everybody, I'm looking forward to it. And

Speaker 2: I think he'll impress. He always does.

Speaker 1: I'm sure you read the commentary from the Wall Street

Speaker 1: analysts who say that Warsh needs to tell us his

Speaker 1: reaction function. So to be fair, what's your reaction function?

Speaker 2: So I think that probably is the focus that we're

Speaker 2: going to talk a lot about that comes out of

Speaker 2: these task forces. I mean, I think things like data

Speaker 2: and communications are going to be really key of the

Speaker 2: five task forces to say, okay, is there a way

Speaker 2: to reset this kind of post-pandemic relative to what we

Speaker 2: did before and what we need to do going forward?

Speaker 2: And so I think we've got big issues. And this

Speaker 2: economic symposium here in Jackson Hole is going to talk

Speaker 2: about financial innovation. It's going to be talking about things

Speaker 2: like that are important to me, things like instant payments

Speaker 2: and how the market supplies that instant payment pipe with liquidity.

Speaker 2: And so there's going to be a lot of things

Speaker 2: that come out of this in the next two or

Speaker 2: three days, including his speech, that I think are going

Speaker 2: to be very additive to how we fulfill our mandate.

Speaker 1: A couple of things on communication. Do you think that

Speaker 1: the chair should continue to do news conferences after every meeting?

Speaker 2: So for me, you know, I think about that as

Speaker 2: from what I do as a Fed president. And I'm

Speaker 2: a transmitter of information. So I go around the district

Speaker 2: all the time. I have roundtables. For me, you know,

Speaker 2: the Kansas City Fed's kind of a power utility center.

Speaker 2: I'm the conduit of information. So it really is kind

Speaker 2: of a personal, how do we want to fulfill our

Speaker 2: duties and our mission here? I bring information from the

Speaker 2: FOMC table to my constituents here. I take what they

Speaker 2: say and I listen to them and take it back

Speaker 2: to the FOMC table. I think he has a much

Speaker 2: more macro role in that. And I think he'll decide

Speaker 2: how he wants to do it.

Speaker 1: What about the idea of moving back to six meetings

Speaker 1: a year that was discussed at the last meeting?

Speaker 2: So here again, I think there's around data and communication.

Speaker 2: I think I'm going to be really fascinated at what

Speaker 2: things we can do relative to giving us more time

Speaker 2: between meetings and bringing that data more real time. I

Speaker 2: hope we can get there. I hope we can use

Speaker 2: some of the technologies that are out there today, be

Speaker 2: it AI and other technologies, to really pull information forward.

Speaker 2: And I think fewer meetings might make us more effective

Speaker 2: if we have more information. But that information is going

Speaker 2: to have to be more real time than it is today.

Speaker 1: Yeah, but everybody who works in the research departments at

Speaker 1: the regional banks and the folks at the Fed in

Speaker 1: Washington and the folks at the statistical agencies say, we

Speaker 1: are using real-time information. We have contracts with a lot

Speaker 1: of companies that are giving us data in real time.

Speaker 2: What are you missing? I would disagree with that. I

Speaker 2: think there's too much lag in the information that we get.

Speaker 2: I think that there's ways that we can connect. I'll

Speaker 2: give you an example. I'm a former banker. We would

Speaker 2: submit call reports every quarter. By the time the examiners

Speaker 2: would look and analyze that information, it's probably six weeks

Speaker 2: after the quarter end. If we could connect closer with

Speaker 2: the banking industry to actually maybe electronically be connected, maybe

Speaker 2: we can get more real-time data from the banking industry

Speaker 2: specifically that would really bring that. Today, a call report

Speaker 2: looks like a slow-moving vehicle to what AI can do today.

Speaker 2: So the connectivity side of it, we can do better.

Speaker 1: One thing as a last question I want to ask

Speaker 1: you is that you look around and you see all

Speaker 1: of the television set up here and all the people

Speaker 1: who come to this event. What do you think of

Speaker 1: the symposium and the way it's evolved over the years?

Speaker 1: Is it still true to what the original founders wanted?

Speaker 2: So there's a special sauce to this symposium, no doubt

Speaker 2: about it. It's our 50th year next year. I mean,

Speaker 2: so something's working. But I tell people that ask, there

Speaker 2: are really three elements to this symposium that make this effective.

Speaker 2: One is, I mean, obviously, it's a great place to be, right?

Speaker 2: So we give the participants an opportunity to explore Jackson

Speaker 2: Hole and the region. And two, Joe Gruber, our chief economist,

Speaker 2: has one of the hardest jobs because he and his

Speaker 2: team have to decide what subject matter is going to

Speaker 2: be relevant in August, and you have to make that

Speaker 2: decision in November prior. And so you hope that that

Speaker 2: subject matter is relevant. He's knocked it out of the

Speaker 2: park this year with this whole financial innovation and payments

Speaker 2: business that's really going to be disruptive over the future.

Speaker 2: And then the participants... And the way we're able to

Speaker 2: get in a room and debate some of these things

Speaker 2: that are happening, Chairman Warsh's speech on Friday is going

Speaker 2: to add to the conversation on Friday and Saturday. And

Speaker 2: we're going to wake up on Monday morning and have

Speaker 2: new thoughts about what's happening in this economy and what

Speaker 2: the Fed should do. And so it seems well-timed, but

Speaker 2: the sauce is really about the people involved in it.

Speaker 1: Do you have any idea what he's going to say?

Speaker 2: I wish. I don't. I'm a warm-up act here, Mike.