Kansas City Federal Reserve President Jeffrey Schmid recently provided an optimistic outlook for the US economy, highlighting strong growth driven by robust consumer spending and investments, particularly in artificial intelligence (AI) technologies.Schmid noted that the economy appears to enter 2026 with significant momentum, citing a 4.4% Gross Domestic Product (GDP) expansion in the third quarter of 2025 as evidence of this upward trend.
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kansascityfed.orgDespite the positive growth indicators, Schmid pointed out that inflation remains a pressing concern, continuing to exceed the Federal Reserve's target.He emphasized the need to differentiate between growth that is supply-driven and that which is demand-driven, as the latter often contributes to higher inflation."With inflation running closer to 3% than 2%, I see it as appropriate to maintain a somewhat restrictive policy stance," Schmid stated.
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richmondfed.orgmacenews.comThe economic landscape has been marked by uneven growth, as high-income households have benefited more significantly from the current economic conditions compared to their low- and middle-income counterparts, who are struggling to keep pace with rising prices.Schmid articulated that while consumer demand has remained strong, particularly fueled by wealth gains, the strength of demand is disproportionately driven by wealthier households.
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kansascityfed.orgmacenews.comIn his assessment, Schmid acknowledged that the recent uptick in productivity could be attributed to several factors, including a reduction in labor market churn, which has allowed employees to gain experience and efficiency.He remarked that businesses are increasingly finding ways to enhance productivity without significantly increasing payrolls.However, he also cautioned that the link between AI and productivity gains is still not firmly established, indicating that other factors might be at play.
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kansascityfed.orgThe Kansas City Fed President's comments come against the backdrop of a Federal Open Market Committee (FOMC) meeting, where most officials expressed a reluctance to resume interest rate cuts due to the persistence of high inflation.While some members of the FOMC have advocated for further easing, the majority are focused on curbing inflation rather than stimulating employment, given the current economic conditions.
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macenews.comSchmid emphasized that further rate cuts could risk allowing inflation to persist even longer.He reiterated the importance of focusing on the Fed's inflation objectives to avoid the risk of inflation becoming entrenched at higher levels."We must remain focused on our headline inflation objective, otherwise I believe there is a real risk that inflation will get stuck closer to 3% than 2% in the long run," he warned.
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richmondfed.orgAs the Federal Reserve navigates this complex economic environment, Schmid remains optimistic about the potential for AI and other innovations to eventually lead to non-inflationary, supply-driven growth cycles.However, he firmly believes that the current economic indicators do not yet support such a transition.
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kansascityfed.orgrichmondfed.orgIn conclusion, while the outlook for economic growth in the US appears strong, the ongoing challenge of inflation necessitates a cautious approach from the Federal Reserve, balancing the need for growth with the imperative to maintain price stability.Schmid’s insights underscore the Fed's dual mandate of promoting maximum employment while ensuring price stability, a challenge that continues to evolve in the current economic climate.
