Federal Reserve Bank of Kansas City President Jeff Schmid said on Tuesday that further monetary policy tightening is needed to bring inflation, which he described as "too high" and "worrisome," back down to the central bank's 2% target.

Delivering his first public remarks since last week's Federal Open Market Committee meeting, Schmid told an audience at a Kansas City Fed event on agricultural issues that the broader economy is performing well overall, with resilient growth. However, he identified inflation as his primary concern.

Schmid argued that the current stance of Fed policy is not restrictive given recent data, and that returning inflation to target will therefore require tighter policy. The current federal funds target range of 3.5% to 3.75% is well below the levels seen during past episodes when the Fed successfully squeezed out comparable inflation, suggesting to Schmid and like-minded colleagues that rates have not yet reached a meaningfully restrictive setting. He did not specify a timeline or magnitude for potential rate increases.

At last week's FOMC meeting, officials voted to hold the federal funds target rate steady in that range, amid ongoing concerns that inflation remains elevated. Three officials dissented in favour of a rate increase, a notably high number for a single meeting and one that underscores a significant degree of internal disagreement over the appropriate policy path. Schmid is the fifth Federal Reserve regional president to publicly advocate raising rates since that meeting.

Although Schmid does not currently hold a vote on the interest-rate-setting FOMC, his comments add to a growing chorus of Fed officials signalling openness to further tightening. Markets are broadly positioned for tighter policy ahead, and remarks from officials like Schmid are likely to carry additional weight in shaping expectations, particularly as newly installed Fed Chairman Kevin Warsh has so far declined to offer clear guidance on his own approach to setting rates. That reticence from the chair has left investors and analysts looking to regional presidents for clues about the direction of policy.

Schmid welcomed recent inflation data showing an encouraging deceleration in June but cautioned that it would be premature to place too much weight on a single data point given recent trends. He said it remains too soon to determine whether inflation is genuinely easing.

He warned against dismissing inflation driven by supply shocks, noting that recent relief from higher energy prices may prove short-lived given the shifting dynamics of the conflict in the Middle East. With oil prices rising again, he said, it remains uncertain how durable any energy-related relief will be.

Schmid said he views the personal consumption expenditures price index as the best gauge of inflation — the measure the Fed formally uses for its 2% target because it covers a broader basket of household spending than the consumer price index and adjusts when consumers shift purchases toward cheaper goods — and reiterated that underlying inflation levels remain too high relative to the Fed's target.

Notably, Schmid pointed to artificial intelligence-related investment as an additional factor pushing up inflation — a relatively novel framing that broadens the inflation narrative beyond the energy and tariff-related shocks dominating recent commentary. A surge in corporate capital spending on AI infrastructure, including data centres and specialised semiconductors, has added demand-side pressure to parts of the economy that supply-focused analyses may underweight. He said the Fed should not overlook this factor.

On the labour market, Schmid described conditions as roughly in balance, suggesting that employment is not currently a significant source of concern relative to price pressures.

Taken together, the remarks position Schmid among the more hawkish voices within the Fed as policymakers weigh persistent inflation risks against a labour market that, by his own account, appears broadly stable for now.