Fed Official Says Inflation Remains Biggest Risk to U.S. Economy

Kansas City Fed President Jeffrey Schmid said inflation remains the biggest risk to the U.S. economy despite strong spending and job growth.

Schmid Puts Inflation Back at the Top of the List

Jeffrey Schmid did not mince words Thursday. The Kansas City Federal Reserve president walked into a banking conference his own institution was hosting and told the room something markets did not entirely want to hear — inflation is still the number one problem in this economy, and the Fed is nowhere near done dealing with it. His prepared remarks did not touch on interest rate timelines. He was not there to give traders a signal. But the message was firm: price pressure is still the dominant risk, and stepping back from that fight right now would be a mistake. The Fed's preferred inflation measure, the Personal Consumption Expenditures price index, was sitting at 3.5% as of March. April's Consumer Price Index reading came in at 3.4% year over year. Both numbers are well above the 2% target the Fed has been chasing for years. Schmid acknowledged prices have pulled back from their pandemic-era highs. But he made clear that coming down from a peak and actually getting under control are two very different things.

He Is Hearing It Directly from Business Owners

Schmid's inflation warning was not built purely on government data. He said he has been out talking to business leaders across the Tenth Federal Reserve District — a wide stretch of the country that covers Kansas, Missouri, Nebraska, Oklahoma, and large parts of Colorado and Wyoming. What he keeps hearing from those conversations is that prices are still a real problem on the ground. Suppliers are still charging more. Input costs have not settled. Margins are under pressure. For the companies Schmid speaks with regularly, inflation is not a number on a chart. It shows up in what they pay for materials, what they charge customers, and what they can afford to pay workers. That ground-level view matters here because it suggests the official data may actually be understating the frustration businesses are carrying right now. Regional Fed presidents like Schmid have always served as a kind of field reporter for the central bank — and his district is sending a clear signal back to Washington.

The Economy Is Not Falling Apart — But It Is Not Fixed Either

Schmid was careful not to paint the U.S. economy as one heading off a cliff. The opposite, in some ways. He said the fundamentals are solid. Consumer spending is still the engine driving most of the activity, and household wealth gains — tied to higher stock prices and rising home values — are keeping people willing to spend. Business investment has held up, particularly in technology and AI-related infrastructure, where spending has been strong. The job market, while softer than it was a couple years back, is still broadly functional. GDP expanded at 4.4% in the third quarter of last year, and the momentum has carried into 2026. So the economy is not struggling. The problem is that it is running hot enough to keep inflation sticky — and a strong economy does not automatically mean an inflation-free one. That is the tension Schmid and his colleagues are sitting with right now.

Oil Is Making the Fed's Job Harder

One of the more pointed parts of Schmid's remarks dealt with energy. West Texas Intermediate crude has been holding above $90 a barrel, pushed higher by tight OPEC+ output and ongoing chaos around the Strait of Hormuz. Schmid said the U.S. is less exposed to global oil swings than it used to be — domestic production has changed that calculus significantly over the past decade. But less exposed is not the same as immune. Higher fuel prices still feed into freight costs, which feeds into product prices, which feeds into what consumers pay at the register. For a central bank trying to bring inflation down, that kind of externally-driven price pressure is a headache because interest rate hikes cannot make oil cheaper. The Fed can slow demand, but it cannot fix a supply problem. That dynamic has been one of the more frustrating parts of this inflation cycle since it started.

Rate Cut Bets Are Getting Pushed Back Further

After Schmid's remarks, CME FedWatch data showed traders pricing a rate cut by September 2026 at less than a 15% probability. Earlier this year, the picture looked quite different — there was real expectation in markets that the Fed would move at least once or twice before the year was out. That window is closing fast. Schmid does not have a vote on the Federal Open Market Committee in 2026, so his views will not directly decide the next rate call. But regional presidents carry weight within the institution, and his hawkish posture reflects something broader happening inside the Fed right now — a reluctance to move until the inflation numbers genuinely justify it. The Producer Price Index came in at 6% recently, the hottest reading in nearly four years. Against that backdrop, anyone expecting a rate cut in the near term is likely going to be waiting a while longer.

The Stakes Are High for Businesses and Borrowers Alike

High rates are not abstract for American companies. Small and mid-sized businesses — the ones that depend on traditional bank lending to fund operations and growth — are paying more to borrow than they have in a very long time. Expansion plans get deferred. Hiring gets cautious. Risk appetite shrinks. On the consumer side, mortgage rates are still elevated enough to keep a lot of first-time buyers on the sidelines. Credit card rates, which move with the federal funds rate, remain punishing for anyone carrying a balance month to month. There is a political dimension to all of this too. Congressional elections are coming. Stubborn inflation and high borrowing costs are not a good story for any administration to run on, and Trump officials have not been quiet about their preference to see rates come down. But the Fed operates independently, and right now, its own data is not giving it permission to move. That tension between political pressure and economic reality is only going to grow as the calendar turns.