MNI BRIEF: Fed's Schmid-More Rate Cuts Could Fuel Inflation

Lowering interest rates further could stoke inflation without helping the labor market, Kansas City Fed President Jeffrey Schmid said, adding that monetary policy must stay tight enough to dampen elevated price pressures.

"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. However, cuts could have longer lasting effects on inflation as our commitment to our 2% objective increasingly comes into question," Schmid said in prepared remarks.  

"This was my rationale for dissenting against the rate cut at the last meeting and one that continues to guide my thoughts as I head into the meeting in December."

Schmid said inflation is too high and his business contacts are flagging ongoing concerns about the pace of cost rises. 

"It is not just tariffs — or even primarily tariffs — that has people worried. I hear concerns about rising health care costs and insurance premiums, and I hear a lot about electricity," he said. "The most recent data suggest that inflation is running in the 3% range, above the Fed’s 2% objective, and spreading, with a growing proportion of goods and services experiencing higher prices."