Fed's Schmid Calls for More Rate Hikes as AI Joins Energy Among Top Inflation Drivers

Kansas City Federal Reserve President Jeff Schmid said on October 6 that the Fed still has work to do on short-term interest rates, pushing back against the notion that rising long-term Treasury yields could substitute for further policy tightening. Despite higher long-term yields doing some of the Fed's work, Schmid argued that short rates need to move higher and that inflation remains frustrating and must be fixed, with the central bank's credibility directly at stake in the fight.

Schmid identified AI-driven demand alongside energy prices as now among the largest drivers of inflation, a notable addition to the usual list of inflationary pressures. He acknowledged that the labor force remains in a good place but stressed that more progress on inflation is still needed before the Fed can stand down.

San Francisco Fed President Mary Daly added a conditional note, saying any need for additional hikes depends on how incoming shocks evolve, leaving the door open to a pause if conditions shift. Parametric Portfolio's Nisha Patel separately noted on CNBC that higher Treasury yields are already performing some of the Fed's tightening work, echoing a debate among market participants about how much the bond market is offsetting the need for further Fed action.