Fed's Schmid says concerned about inflation, job market

Investing.com -- Kansas City Federal Reserve President Jeffrey Schmid revealed on Friday that his dissent against this week’s interest rate cut stemmed from concerns about persistent inflation potentially undermining the central bank’s credibility.

Schmid was one of two officials who voted against Wednesday’s decision to lower the policy rate to the 3.75% to 4% range. While Fed Governor Stephen Miran dissented in favor of a larger half-point reduction, Schmid opposed any cut at all.

"I do not think a 25-basis point reduction in the policy rate will do much to address stress in the labor market," Schmid said in a written statement. He added that a rate cut "could have a longer lasting effect on inflation if the Fed’s commitment to its 2% inflation target comes into question."

The Kansas City Fed president suggested that any labor market weakness likely stems from structural changes in technology and demographics rather than weakening demand. He pointed to healthy consumer spending and business investment as evidence the economy "is showing continued momentum."

Despite the ongoing federal government shutdown halting official data releases, recent reports indicate the Fed’s preferred inflation measure is running at approximately 2.8% annually.

Schmid noted that contacts in his midwestern district express "widespread concern over continued cost increases and inflation," with healthcare costs and insurance premiums being particularly problematic. He observed that "inflation is spreading across categories, both goods and services."

Characterizing current monetary policy as only "modestly restrictive" and the labor market as "largely in balance," Schmid argued that "with inflation still too high, monetary policy should lean against demand growth...and relieve price pressures in the economy."

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