Fed’s Jeffrey Schmid Signals Opposition to Further Rate Cuts With Inflation ‘Too High’

Kansas City Fed President Jeffrey Schmid has indicated that he isn’t in support of further Fed rate cuts due to rising inflation. Schmid is the latest Fed official to raise concerns over inflation, even as the market continues to price in another 25 basis points (bps) cut at the upcoming FOMC meeting, which could impact the crypto market.

Schmid Suggests Opposition Against Further Fed Rate Cuts

In remarks delivered to CFA Kansas City, the Fed president stated that he views the current monetary policy stance as only slightly restrictive, which he opined is the right place for it to be. He further remarked that with inflation still too high, monetary policy should lean against demand growth to allow the space for supply to grow and bring prices down.

Schmid warned that the current environment is one where aggressively boosting demand, possibly through Fed rate cuts, could raise the risk of a massive increase in prices. The Fed president expects a relatively muted effect of the Trump tariffs on inflation. However, he believes this will happen due to how they adjust monetary policy rather than a sign that they aggressively lower the policy rate.

The Fed president joins other Fed officials, such as Dallas Fed President Lorie Logan, who recently called for caution over rate cuts, citing inflation risks. Like Schmid, Logan stated that she doesn’t believe the current monetary policy is more than modestly restrictive. She added that this was appropriate since their goal should be to put downward pressure on inflation.

Time To Prioritize Inflation Over The Labor Market?

In his remarks, Schmid suggested that it was time to prioritize addressing inflation over concerns about the labor market. He stated that at the September FOMC meeting, he voted in favor of a 25-bps Fed rate cut. The Fed president explained that, given signs that the labor market had cooled, he viewed the cut as being an “appropriate risk-management strategy” as they balanced the risks to inflation and employment.

The Fed president highlighted how they were facing constraints in determining policies that enable them to achieve their dual mandate regarding inflation and the labor market. He admitted that policies that boost the labor market often come at the expense of higher inflation and vice versa.

However, in balancing these constraints, Schmid opined that the Fed must maintain its credibility on inflation, further suggesting that he may not support further Fed rate cuts for now. Despite the Fed president’s stance, there is a likelihood of the Fed making another 25-basis-point rate cut at the October meeting, with the odds currently at 94.1%, according to CME FedWatch.

The Kansas City Fed president said that he plans to continue taking a data-dependent approach to any further policy adjustments. He said that he is hopeful that the government data that influences their decision will soon become available. The ongoing government shutdown has delayed the release of this data.

In the meantime, Schmid plans to monitor alternative labor market and price data ahead of the FOMC meeting, which will be held between 28 and 29 later this month.