Federal Reserve Bank of Kansas City President Jeffrey Schmid warned Tuesday that policymakers must guard against complacency in the inflation fight, emphasizing that premature interest rate cuts could undermine progress toward price stability. In his first major policy speech since taking office in August 2023, Schmid argued that the central bank needs “clear and convincing evidence” of sustained 2% inflation before easing monetary policy.
The remarks come as markets increasingly bet on rate cuts later this year, with futures pricing suggesting a 70% probability of at least one reduction by September. However, Schmid’s hawkish tone aligns with recent comments from other Fed officials who have pushed back against aggressive easing expectations. “We’ve made considerable progress, but the last mile may prove the most difficult,” Schmid told a business audience in Omaha, according to prepared remarks reviewed by multiple outlets.
Recent economic data presents mixed signals. While the Personal Consumption Expenditures (PCE) price index – the Fed’s preferred inflation gauge – showed core prices rising just 2.8% year-over-year in January (down from 4.7% a year earlier), consumer price index (CPI) readings have remained stubbornly elevated. Analysts note that services inflation and wage growth continue to run hot, with the January jobs report showing unexpected strength in hiring.
Market strategists suggest Schmid’s comments reflect growing division within the Fed. “This is the classic tug-of-war between regional hawks and the Board’s more dovish leanings,” said Diane Swonk, chief economist at KPMG. “The risk is that keeping rates too high for too long could unnecessarily damage the labor market.” The Fed next meets March 19-20, where officials will update their rate projections in the closely watched “dot plot.”