# Inflation: A View from the FOMC Source: https://www.youtube.com/watch?v=ATPfOS4OGQg Recap page: https://rapidrecap.app/video/ATPfOS4OGQg Generated: 2025-11-24T16:08:09.387+00:00 --- ## Quick Overview Federal Reserve Bank of Kansas City President and CEO Jeff Schmid believes that while inflation rates exceeded the Fed's 2% target for nearly five years, leading to aggressive policy tightening, the resulting labor market cooling and economic data suggest that the Fed's current policy stance may need to be reassessed, potentially moving toward a more neutral stance to support economic growth without causing a recession. **Key Points:** - US inflation rates exceeded the Fed's 2% target for nearly five years, prompting the FOMC to cut the Fed Funds Rate five times in the past 14 months, including a 150 basis point cut in October. - Schmid suggests that the current labor market cooling is still largely in balance, but the financial conditions and slowing inflation data warrant a closer look at policy settings. - The Federal Reserve Bank of Kansas City's structure, with its 12 regional banks and advisory councils, allows for regional economic data collection, which Schmid finds invaluable. - Schmid expresses concern that the Federal government's policy decisions, such as tariffs, may be working against the Fed's efforts, creating counterproductive behavioral reactions. - The Kansas City Fed's internal data, including the Labor Markets Condition Index and household surveys, show positive trends in supply-side factors and cooling inflation, but also point to potential risks like recession if policy is too restrictive. - Schmid believes that while the Fed's aggressive tightening has been effective, the current situation suggests a potential shift away from restrictive policy is needed to avoid unnecessary economic damage, especially given the positive long-term outlook for AI/robotics adoption. - He notes that the Fed's credibility is crucial, particularly in anchoring inflation expectations to the 2% target, which requires careful management of policy adjustments. ![Screenshot at 00:01: 59:Jeff Schmid discusses the challenge of maintaining the dual mandate while navigating high inflation and cooling labor markets, noting that the FOMC's recent actions have been significant.](https://ss.rapidrecap.app/screens/ATPfOS4OGQg/00-00-01.png) **Context:** This video features a conversation between Steven Davis, Senior Fellow at the Hoover Institution, and Jeff Schmid, President and CEO of the Federal Reserve Bank of Kansas City. The discussion centers on the current state of US monetary policy, particularly concerning inflation, labor market conditions, and the appropriate path forward for the Federal Open Market Committee (FOMC) following recent aggressive interest rate hikes. ## Detailed Analysis Jeff Schmid, President and CEO of the Federal Reserve Bank of Kansas City, discusses the current economic environment, focusing on inflation, labor markets, and the Federal Reserve's policy stance. Schmid notes that while inflation exceeded the 2% target for nearly five years, prompting aggressive rate hikes, recent data suggests a need to re-evaluate the policy path. He highlights the value of the Federal Reserve System's regional structure in gathering diverse economic data, including surveys that show positive supply-side improvements and inflation cooling toward the 2% target. However, he cautions against risking an unnecessary recession by keeping policy too tight, citing the risk of policy errors like the one that occurred during the 1980s. Schmid points out that while the labor market has cooled, it remains robust, and he believes the Fed's credibility hinges on successfully anchoring inflation expectations at 2%. He also mentions concerns about fiscal policy, like tariffs, potentially undermining monetary policy goals, and expresses optimism about the long-term economic benefits of AI and robotics, provided the Fed navigates the current tightening cycle prudently. ### Inflation and Policy Response - US inflation exceeded the 2% target for nearly five years, leading the FOMC to cut the Fed Funds Rate five times in the last 14 months, including a 150 basis point cut in October. ### Labor Market Assessment - The labor market is cooling but remains largely in balance, with strong employment figures, though Schmid notes that the unemployment rate is still trending up in some data streams. ### Regional Data Value - The Federal Reserve System's structure, encompassing 12 districts, allows for comprehensive, regional data collection, which Schmid finds crucial for policy decisions. ### Policy Credibility and Risk - Schmid emphasizes the importance of maintaining credibility by guiding inflation back to 2%, warning that overly restrictive policy risks derailing the economy, citing historical errors from the 1980s. ### Future Outlook & AI - Schmid expresses optimism about the long-term potential of AI and robotics to boost productivity, provided the current policy adjustments are calibrated correctly to avoid overshooting a recession. ### Policy Communication - Schmid mentions the need to communicate clearly about the dual mandate and the factors—like supply chain improvements and fiscal policies—that influence the path to the 2% inflation target. ![Screenshot at 00:01: 41:Jeff Schmid introduces the topic of the Jackson Hole Monetary Policy Symposium held at Jackson Lake Lodge, Wyoming.](https://ss.rapidrecap.app/screens/ATPfOS4OGQg/00-00-01.png) ![Screenshot at 00:02: 12:Steven Davis holds up a laminated, autographed dollar bill, presented as a contribution to his work.](https://ss.rapidrecap.app/screens/ATPfOS4OGQg/00-00-02.png) ![Screenshot at 00:39: 00:Jeff Schmid smiles while acknowledging the difficulty of the Fed's current balancing act between inflation and employment.](https://ss.rapidrecap.app/screens/ATPfOS4OGQg/00-00-39.png) ![Screenshot at 01:09: 09:A scenic shot of mountains and a lake, referencing the Jackson Hole location of the policy symposium.](https://ss.rapidrecap.app/screens/ATPfOS4OGQg/00-01-09.png) ![Screenshot at 02:52: Steven Davis emphasizes the need to re-evaluate the Fed's path given the current economic data, gesturing with both hands.](https://ss.rapidrecap.app/screens/ATPfOS4OGQg/00-02-52.png)