Kansas City Fed's Schmid Warns Rates May Need to Rise Again-90-Day Hike Odds Jump to 82%

Schmid's message raises the risk of another move tighter

After the Fed held the federal funds target rate steady at 3.5%-3.75%, Kansas City Fed President Jeff Schmid said some sort of monetary policy tightening is needed because most of the economy is performing well while inflation remains the problem. For investors, that keeps the "higher for longer" scenario alive and revives the risk that policy could move tighter again rather than easier.

CME FedWatch now shows an 82.4% chance of a rate hike by the Sept. 16 meeting, up from 52.4% as of July 16. That does not guarantee a hike, but it does show markets are increasingly bracing for it.

Why Schmid worries inflation is still too broad

Schmid's warning is not just about one warm inflation print. His concern is that a still-resilient economy could let elevated inflation become entrenched.

Strong demand can keep price pressure alive

When the economy is entering 2026 on strong footing and inflation is running roughly double the Fed's 2% target, demand may still be pressing against supply. That is the basic setup Schmid appears to be describing.

He has also said inflation is broad-based, extending to food prices. When price pressure is spread across many categories instead of being driven by one temporary factor, it is harder to assume inflation will simply fade on its own.

Another round of easing could let inflation stick

Schmid has argued that whether a price shock fades or persists depends in part on monetary policy. If the Fed eases while demand remains firm, inflation does not have to accelerate to become a problem. It only has to stay high long enough for households and businesses to adjust to a less desirable price path.

That helps explain his warning that inflation could get stuck closer to 3% than 2% in the long run. It is a different risk from a short-lived spike: less about one bad quarter, more about the Fed losing credibility and patience at once.

AI may help growth, but not fast enough to relax policy

Schmid said artificial intelligence could boost growth without reigniting inflation. Even so, he also said it is too early for the Fed to relax. With the most of economy performing well, that leaves little room for premature easing if inflation is still too high.

What would confirm or weaken the hike narrative

Schmid's remarks are a policy signal, not a firm commitment. The market is already watching pricing data such as CME FedWatch and 30-Day Fed Funds futures and options, which are widely used tools for hedging short-term interest rate risk. Those tools are useful for tracking sentiment, but they are not evidence by themselves.

If higher-rate expectations are going to translate into policy action, investors should look for follow-through in the data rather than in speeches alone. For now, the key point is simple: Schmid is arguing that inflation, not weakness, is still the main problem, and that may leave the Fed with fewer easy options.