The table is set for rates to go lower: Fed’s Schmid
Jeff Schmid, President of the Kansas City Federal Reserve Bank and one of the more hawkish members of the U.S. central bank, said on Thursday that recent “encouraging” data has boosted his confidence that inflation is easing.
In comments prepared for a speech at the Kansas Bankers Association’s annual meeting in Colorado Springs, Colorado, Schmid noted that this improvement could open the door for a reduction in the Fed’s interest rates.
Schmid remarked, “Given the multi-decade shock to inflation that we’ve faced, we should be preparing for the worst rather than the best in the data.”
He also mentioned that while prices might still fluctuate, the Fed will need “longer periods” to be sure of the inflation trend.
“However, if inflation continues to stay low, I’ll be more confident that we’re on track to achieve our price stability goals, and it might be time to adjust our policy stance,” Schmid said.
The latest inflation data shows that inflation is around 2.5%, which is close to the Fed’s target of 2%, but not quite there yet. Schmid noted that while the Fed is making progress, there’s still work to be done.
Last week, the Fed decided to keep the policy rate between 5.25% and 5.50%, where it has been for over a year. They also hinted at a possible rate cut next month, suggesting a more balanced view on inflation and employment risks.
However, shortly after this decision, a weak jobs report raised concerns in financial markets that the Fed might need to take more aggressive action to protect the economy from a potential recession.
Schmid pushed back on that view, describing the economy as resilient, consumer demand strong, and the labor market as noticeably cooling but still “quite healthy” when indicators beyond the rise in the unemployment rate are considered.
Given these conditions, he stated that the Fed’s current policy stance “is not overly restrictive.” Additionally, he mentioned that in order to see further declines in inflation, the labor market must cool down even more.
“This story could change if conditions were to weaken considerably more,” Schmid reportedly added. However, overall, he signaled that he remains on wait-and-watch mode as the “path of policy will be determined by the data and the strength of the economy.”
Schmid reportedly stated: “With the tremendous shocks that the economy has endured so far this decade, I would not want to assume any particular path or endpoint for the policy rate.”
