Fed's Schmid: inflation too hot, no room to be complacent

March 3 (Reuters) - Kansas City Federal ‌Reserve President Jeffrey ​Schmid on ​Tuesday signaled his continued opposition to further interest-rate cuts, saying the U.S. labor market is in balance and inflation is too hot.

"Inflation has been ‌above the Fed’s objective for nearly five years now," Schmid said in ⁠remarks prepared for delivery to the Metro Denver Executive Club, noting that demand is outpacing supply and ‌is pushing up the price of ‌services too fast to be consistent with a return to the Fed's 2% inflation goal. "I don’t think we have room to be complacent."

Schmid did not address the ​economic impact of the conflict in Iran in his prepared remarks, though at least in the short term the volatile situation in the oil-rich Middle East would seem ⁠to add to his concerns about price pressures.

Schmid has opposed further Fed easing for a while now, dissenting on ​two of the Fed's rate cuts last year and supporting the central bank's decision last month to leave short-term borrowing costs in their ​current 3.50%-3.75% range.

Inflation is running near 3%, he ‌noted, adding that a one percentage point increase in inflation reduces U.S. household purchasing power by $300 billion.

Financial markets had expected labor market deterioration, ⁠subsiding inflation, or a combination of the two to move the central bank to cut rates again by midyear, but since the U.S. and Israel's attack on Iran began on the weekend ⁠traders have pushed expectations for another rate cut deeper into the year.

Schmid said he shares the optimism ​about economic growth in the coming year that he hears from his business contacts, and said he believes the Trump administration's tax reforms will act as a tailwind to growth.

But he rejected the idea ‌that artificial intelligence is boosting productivity fast enough to allow faster growth without inflationary pressures, a key argument for those who feel ‌the Fed still has room to cut rates.

"I remain open to the possibility, and I’m ⁠even optimistic, that AI and other ‌innovations will eventually lead to ​a non-inflationary, supply-driven growth cycle," he said. "However, based on the current rate of inflation, we are not there yet."

(Reporting by Ann Saphir; Editing by ‌Andrea Ricci)

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