Kansas City Federal Reserve Bank President Jeff Schmid stated that interest rates should remain at a level that continues to exert some pressure on the economy to allow inflation to cool further. In prepared remarks for an event in Kansas City on Thursday, Schmid said, "Given that inflationary pressures remain evident, I am inclined to keep monetary policy modestly restrictive."
He also noted, "While the labor market has cooled, a certain degree of cooling may be necessary to prevent the inflation outlook from deteriorating." Fed policymakers cut interest rates consecutively at the final three meetings of 2025, and Schmid voted against the moves at both the October and December meetings. At the time, he warned that robust economic growth could rekindle inflation. It is widely anticipated that the Fed will hold rates steady at its upcoming meeting later this month, with investors generally expecting the next rate cut not to occur until mid-year. The target range for the benchmark federal funds rate currently stands at 3.5% to 3.75%, which is at or near the so-called neutral level. Schmid reiterated on Thursday that further rate cuts might not significantly stimulate hiring. Following weak performance in the U.S. job market during 2025, Schmid believes the employment slowdown is driven by structural factors, whereas the Fed is better suited to provide assistance during cyclical downturns. "I do not believe further rate cuts would substantially mend any fissures in the labor market—these pressures are more likely stemming from structural changes in technology and immigration policy," Schmid stated. "I am concerned that, as doubts grow about our commitment to achieving the 2% target, rate cuts could have a more lasting impact on inflation." Schmid also discussed the Fed's independence and its federalized structure, which includes officials based in Washington as well as those at the 12 regional Federal Reserve Banks across the nation. The Fed has faced increasing scrutiny from the Trump administration, with some officials advocating for a reassessment of certain elements of the Federal Reserve System. Schmid remarked, "A decentralized Fed also makes it possible for differing views on the correct path for monetary policy to exist. This is a strength of the system. Policy discussions are more robust when they incorporate diverse perspectives."
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