Fed's Jeff Schmid: Hold Rates to Tame Stubborn Inflation

Federal Reserve Bank of Kansas City President Jeff Schmid argued that interest rates need to remain high enough to continue pressuring the economy and ensure inflation cools down completely.

"With inflation pressures still evident, my preference would be to keep monetary policy modestly restrictive," Schmid stated in remarks prepared for a Thursday event in Kansas City.

He also addressed the labor market, noting that while it has cooled, some of this slowdown is necessary to prevent inflation from worsening.

A History of Dissent and the Current Rate Outlook

Schmid's cautious stance is consistent with his past actions. He dissented against the Federal Reserve's final two interest rate cuts in October and December of 2025, warning at the time that strong economic growth could reignite inflation.

Looking ahead, the Fed is widely expected to hold rates steady at its next meeting. Investors are not anticipating another cut until at least the middle of the year. The current benchmark federal funds rate sits in a range of 3.5%-3.75%, a level many Fed officials consider "neutral"—meaning it neither stimulates nor restricts economic activity.

Labor Market Woes vs. Inflation Risks

Schmid reiterated his belief that further rate cuts would be ineffective in boosting hiring, which was sluggish in 2025. He contends that the slowdown is driven by deep-seated structural issues rather than a cyclical downturn that the Fed could easily address.

"I do not think further cuts in interest rates will do much to patch over any cracks in the labor market—stresses that more likely than not arise from structural changes in technology and immigration policy," Schmid explained.

He warned that premature cuts could have dangerous long-term consequences. "I worry that cuts could have longer-lasting effects on inflation as our commitment to our 2% objective increasingly comes into question."

In Defense of the Fed's Structure

Schmid also commented on the Federal Reserve's independence and its unique federal structure, which includes officials in Washington and at 12 regional reserve banks across the country. The system has faced increased scrutiny from the Trump administration, with some calling for a reexamination of the reserve banks' role.

Schmid framed this decentralized model as a key advantage.

"The decentralized Fed also allows for differing views on the correct course of monetary policy," he said. "This is a strength of the system. Policy discussions are stronger when they incorporate a diversity of views."