Kansas City Federal Reserve President Jeffrey Schmid said continued inflation is the most pressing risk to the U.S. economy, offering a firm warning that price pressures remain too high even as growth, employment and financial conditions show signs of resilience.

Schmid delivered the assessment Thursday in prepared remarks to the Federal Reserve Bank of Kansas City’s Future of Banking Conference in Kansas City, Missouri. While the speech was primarily focused on payments infrastructure and the competitive position of community banks, his economic comments carried a clear monetary-policy signal: the Fed’s inflation fight is not over, and the central bank has limited room to shift toward easier policy while inflation remains above target.

“I see continued inflation as the most pressing risk to the economy,” Schmid said in the remarks. He added that inflation has moderated significantly from its peak but that conversations with business leaders across the Tenth Federal Reserve District indicate it is “still too high.”

The comments came after a run of inflation data that has complicated the economic outlook. The personal consumption expenditures price index, the Fed’s preferred inflation gauge, rose 3.5% in March from a year earlier, according to the Bureau of Economic Analysis. Core PCE inflation, which excludes food and energy, rose 3.2% over the same period. Both readings remained well above the Fed’s 2% objective.

More recent April figures pointed to renewed pressure. The Bureau of Labor Statistics reported that the consumer price index rose 3.8% for the 12 months ended in April, up from 3.3% in March. Core CPI rose 2.8% from a year earlier. Energy prices were a major driver, increasing 17.9% over the year, while food prices rose 3.2%.

Producer prices also accelerated. The Producer Price Index for final demand rose 1.4% in April, the largest monthly gain since March 2022, and increased 6.0% over the 12 months ended in April, according to BLS data released May 13. That producer-side surge matters for the Fed because it can foreshadow future consumer price increases if businesses pass higher costs through to households.

Schmid’s remarks did not include a direct forecast for the federal funds rate. He is not a voter on the Federal Open Market Committee this year, but regional Fed presidents still participate in policy discussions and help shape the public debate around the central bank’s reaction function. His emphasis on inflation places him on the hawkish side of that debate, at least relative to market participants looking for lower rates.

The federal funds rate has become the key transmission channel through which the Fed is trying to balance inflation control against economic stability. When policymakers keep rates elevated, borrowing costs remain higher for households, businesses and governments. That can restrain demand and cool inflation, but it can also weigh on hiring, investment, housing and credit formation. Schmid’s remarks suggest he sees the inflation risk as large enough to justify continued caution.

His comments also show how the Fed is parsing an economy that is neither clearly overheating nor clearly weakening. Schmid described the U.S. economy as facing several challenges but also showing “remarkable resilience.” He said economic fundamentals in the nation and the Tenth District remain sound despite geopolitical uncertainty and energy-market pressure.

That framing is important because it reduces the urgency for immediate rate cuts. A weakening labor market or sharp drop in output would give policymakers a stronger reason to ease policy. Schmid instead portrayed the economy as expanding at a modest but steady pace, with unemployment still relatively low by historical standards and the labor market functioning effectively.

He described the labor market as being in an unusual “low-hire/low-fire” environment. That phrase captures one of the economy’s central post-pandemic dynamics: employers are not rapidly expanding payrolls, but they also are not conducting broad layoffs. For the Fed, such a labor market is less alarming than one showing rapid job destruction, but it also provides less evidence that economic slack will quickly bring inflation down.

Consumer spending remains another pillar of the outlook. Schmid noted that household spending continues to be the largest driver of economic activity, representing roughly two-thirds of output. He said aggregate household balance sheets remain strong, helped by gains in equity markets and home values over recent years. Those wealth gains, particularly among higher-income households, have supported spending even as prices remain elevated.

That strength carries a mixed implication for monetary policy. Resilient spending helps sustain growth and reduces recession risk, but it can also keep demand firm enough for businesses to maintain or raise prices. For a Fed official focused on inflation, strong household demand is not an unambiguous positive if it delays the return of inflation to target.

Business investment has also supported the expansion. Schmid pointed to strength in technology infrastructure and the artificial-intelligence buildout, saying those investments reflect confidence in potential long-term productivity improvements. Productivity gains can help the economy grow without generating the same degree of inflation pressure, but the timing and scale of those benefits remain uncertain.

Schmid also noted that longer-term population trends could limit future growth. Declining fertility rates and the retirement of baby boomers may constrain labor-force growth, reducing the economy’s speed limit. If the economy’s potential growth rate slows, policymakers may have less room to stimulate demand without risking inflation.

Energy prices were a central concern in the latest inflation backdrop. Schmid said geopolitical developments continue to create uncertainty and that, while the United States is less vulnerable to global energy disruptions than in the past, higher oil prices still drain household spending power and increase costs for businesses. That dual effect is particularly difficult for central banks because it can both raise inflation and reduce real consumer purchasing power.

The Fed’s challenge is to determine whether higher energy costs are a temporary relative-price shock or a force that could feed into broader inflation. If consumers and businesses treat a jump in oil or gasoline prices as short-lived, long-term inflation expectations may remain anchored. If those costs spread into transportation, services, wages and contracts, the central bank may face a more persistent inflation problem.

Schmid’s emphasis on business conversations across the Tenth District suggests that he is looking beyond national data releases. Regional Fed presidents often rely on contacts with executives, bankers, farmers, energy firms and community leaders to assess whether official statistics match conditions on the ground. His conclusion that inflation is still too high indicates that price concerns remain prominent in those discussions.

The setting of the remarks also mattered. Schmid was speaking to a banking industry audience at a conference focused on the future of banking. He said banking-sector conditions remain fundamentally sound, with strong capital and liquidity positions, healthy profitability and sound credit quality. Community banks, he said, continue to maintain higher capital ratios on average than larger counterparts.

That assessment reduces the immediate likelihood that financial stability concerns will dominate the Fed’s economic calculus. If banks were showing acute stress, policymakers might need to weigh inflation control against credit-market fragility more urgently. Schmid instead framed the banking system as resilient, though under competitive pressure from fintech firms, digital wallets and changing customer expectations.

Schmid said community banks face intensifying competition as consumers hold more balances with fintech companies and nonbank providers. In the Tenth District, he said, there were more than 114 million transactions valued at $18.6 billion into and out of the two largest digital wallets last year. While that point was directed at banking strategy rather than monetary policy, it highlights a broader structural shift in money movement and consumer finance.

The payments theme connected to Schmid’s broader view of economic modernization. He argued that instant payments and the FedNow Service can help community banks respond to customer expectations for faster, more convenient transactions. Federal Reserve Financial Services, he said, maintains relationships with roughly 9,000 financial institutions and processes more than $5 trillion in transactions daily.

For markets, however, the most immediate message from the speech was inflation. Schmid’s language makes it harder to argue that the Fed is preparing to pivot decisively toward easing unless upcoming data show a clear moderation in price pressures. Investors watching the Treasury market, bank lending conditions and equity valuations are likely to interpret his remarks as consistent with a higher-for-longer policy bias.

The Fed has repeatedly said it needs confidence that inflation is moving sustainably toward 2%. Schmid’s comments suggest that confidence is not yet in place. March PCE inflation at 3.5%, April CPI at 3.8% and April PPI at 6.0% are not consistent with price stability, even if some of the pressure reflects energy and geopolitical shocks.

That distinction will be central to future Fed decisions. Policymakers can look through temporary energy spikes when underlying inflation is contained and expectations are anchored. But if price increases broaden, the Fed may have to maintain restrictive policy for longer or, in a more severe scenario, consider additional tightening. Schmid did not advocate a specific course, but his risk assessment pointed clearly toward caution.

The remarks also underscore the communication challenge facing Fed officials. The economy has avoided a sharp downturn, equity markets have supported wealth and business investment remains strong, especially in technology and artificial intelligence. Those conditions can make restrictive monetary policy appear manageable. At the same time, inflation above target keeps pressure on households and complicates long-term planning for firms.

For households, the inflation risk is direct. Higher energy and food prices reduce disposable income, especially for lower- and middle-income consumers who spend a larger share of earnings on necessities. For businesses, higher input costs can squeeze margins unless they are passed on to customers. For the Fed, both channels matter because they influence demand, pricing behavior and inflation expectations.

Schmid’s statement that inflation is the most pressing risk does not imply that other risks are absent. He acknowledged geopolitical uncertainty, energy disruption, demographic limits and technological change. But by ranking inflation first, he effectively argued that the central bank’s primary mandate challenge remains price stability rather than employment weakness.

That view is consistent with a policy environment in which Fed officials are likely to demand several months of better data before changing course. Upcoming PCE readings, labor-market reports, wage data and measures of inflation expectations will carry heightened significance. Any evidence that energy-driven increases are spreading into core services or long-term expectations would strengthen the case for holding rates steady or maintaining a more hawkish stance.

Conversely, a visible cooling in monthly inflation, stable expectations and signs of softer demand would give policymakers more flexibility. But Schmid’s remarks indicate that the burden of proof remains on the data. In his view, the economy is resilient enough to withstand current headwinds, while inflation remains too elevated to treat as a secondary concern.

The result is a familiar but increasingly delicate Fed message: the economy is sound, but price stability is not secured. Schmid’s remarks did not reset monetary policy by themselves, but they reinforced the central bank’s prevailing caution at a moment when inflation data have again moved in the wrong direction.