Kansas City Fed President Speaks at Secured Finance Network Amid Market Volatility, Commits to Tackling Inflation
Federal Reserve Bank of Kansas City President Jeffrey Schmid addressed the Secured Finance Network’s Independent Finance Roundtable in Missouri earlier this week, offering a detailed outlook on the state of the U.S. economy, the Federal Reserve’s policy decisions, and the challenges posed by inflation and interest rates. His remarks came amid a period of heightened economic uncertainty, and he used the platform to discuss the Federal Reserve’s approach to stabilizing the economy while maintaining long-term growth.
During his address, Schmid emphasized the critical role of the Federal Reserve’s regional structure in shaping effective monetary policy, noting that the Fed’s direct engagement with industries and geographies across the nation helps inform its decision-making process. He described how such engagements provide valuable insights into the forces driving the economy, from local business sentiment to national economic trends. In this context, Schmid explained that events like the Independent Finance Roundtable allow the Federal Reserve to better understand the needs of key sectors, including the $5 trillion secured finance community, which plays a crucial role in driving economic activity by providing working capital to businesses.
“Our understanding of current and developing economic conditions is informed by direct, local engagement with the industries and geographies that make up the American economy,” Schmid said. “Events like this one today play an important role in the process.” This sentiment was echoed by SFNet CEO Richard Gumbrecht, who highlighted the importance of such exchanges between regulators and financial industry leaders, particularly in times of economic uncertainty. “Jeffrey Schmid offered valuable economic perspective and important historical context, which is more important than ever during times of uncertainty,” Gumbrecht remarked, stressing that such dialogues help achieve SFNet’s mission of deploying working capital effectively to foster economic growth.
Schmid took the opportunity to discuss several pressing issues, particularly inflation, long-term interest rate dynamics, and the ongoing volatility in the financial markets. He noted that recent financial market turbulence, driven by shifting economic outlooks and geopolitical developments such as tariff announcements, had raised concerns about inflationary pressures. These developments have added layers of uncertainty to the economic landscape, leaving businesses and financial institutions unsure about the future trajectory of key economic indicators.
Despite these challenges, Schmid expressed cautious optimism, noting that the U.S. economy had entered this period of uncertainty from a position of strength. He highlighted solid GDP growth, improving productivity, and a historically strong labor market as key economic indicators that suggest the country is still in a relatively strong position. However, he acknowledged that emerging inflation risks and employment concerns could test the economy’s momentum, potentially undermining these positive trends.
“We are entering a challenging period from a position of strength,” Schmid stated. “Solid GDP growth, improving productivity, and a historically strong labor market are the foundations that we can build on as we navigate through this time. But we must remain vigilant about inflation and employment challenges, which could disrupt this momentum.”
Inflation remains a key area of focus for Schmid, and he expressed deep concern over the potential for inflation expectations to become unanchored. Drawing parallels to the inflationary environment of the 1970s and 1980s, Schmid warned that if inflation expectations were not properly managed, they could become entrenched, leading to longer-term economic distortions. This, he argued, could make it more difficult for the Federal Reserve to achieve its dual mandate of price stability and maximum sustainable employment. “I intend to keep my eye squarely focused on the outlook for inflation,” Schmid remarked, signaling that the Federal Reserve would continue to prioritize inflation control in its policy decisions.
In discussing the long-term outlook for interest rates, Schmid outlined two opposing forces that could shape the future direction of rates. On the one hand, demographic shifts, including an aging workforce, are likely to put downward pressure on interest rates as the demand for credit weakens in response to a slowing population growth rate. On the other hand, Schmid noted that increased federal debt, along with potential declines in global demand for U.S. assets, could push interest rates higher over time. This dynamic, Schmid explained, reflects the complex interplay of global and domestic factors that influence monetary policy and interest rate trends.
“In summary, there are reasons that rates could stay high in the long run and reasons why they might decline,” Schmid said. “The ultimate trajectory will be determined by the balance between these forces. While the aging population might exert downward pressure on rates, the growing federal debt and global market factors could offset these trends and push rates higher.”
Schmid’s remarks underscored the complexity of the current economic environment and the challenges facing policymakers as they work to navigate through these uncertain times. He made it clear that while the Federal Reserve is committed to fostering economic stability and growth, it must remain vigilant to emerging risks, particularly inflation. The central bank, Schmid emphasized, must balance the needs of the economy—promoting growth and employment—while also ensuring that inflation remains under control.
The Federal Reserve’s approach to managing inflation is especially crucial as inflationary expectations become more sensitive to short-term changes in the economic landscape. Schmid’s remarks reflected a deep understanding of the need for coordinated action between the Fed, businesses, and financial institutions to keep inflationary pressures in check and maintain long-term stability. This approach, he said, will require both flexibility and foresight, ensuring that the Fed can respond effectively to economic shocks while keeping inflation expectations anchored.
Looking ahead, Schmid also provided a broader outlook for the U.S. economy, highlighting the significant uncertainties that lie ahead. While the economy has made significant strides in recovery from past recessions, the future remains uncertain, particularly as global challenges such as trade tensions, fiscal policy shifts, and geopolitical risks continue to evolve. Schmid emphasized that the Federal Reserve’s role in navigating these challenges will be critical, especially as the economy adjusts to changes in demographics, technology, and market structure.
In conclusion, Schmid’s speech at the Secured Finance Network’s Independent Finance Roundtable offered a thorough and insightful analysis of the current economic outlook, emphasizing the Federal Reserve’s commitment to controlling inflation and managing long-term interest rates. Despite the uncertainty, Schmid expressed confidence that the U.S. economy would continue to grow, provided that inflation risks were managed and the labor market remained strong. As he stated, “The ultimate trajectory of the economy will be shaped by our collective ability to navigate these challenges, keeping inflation expectations in check and fostering sustainable economic growth.”
A full transcript of Schmid’s remarks can be found on the Kansas City Federal Reserve website: [link to full remarks].
