MNI BRIEF: Fed's Schmid Sees 'Little Reason' To Lower Rates

The Federal Reserve needs to keep monetary policy somewhat tight to continue putting downward pressure on an inflation rate that has shown some improvement but remains too high, Kansas City Fed President Jeffrey Schmid said Thursday.

"I see little reason at this point to further lower the policy rate, though of course, I will be watching the data closely for signs that growth is losing momentum or that the labor market is weakening more substantially," Schmid said in prepared remarks.

"With inflation pressures still evident, my preference would be to keep monetary policy modestly restrictive. And I will judge the restrictiveness of monetary policy by how the economy evolves, both in the data and based on what I’m hearing from contacts," he said. "Right now, I see an economy that is showing momentum and inflation that is too hot. And while the labor market has cooled, some cooling is likely necessary to keep the inflation outlook from worsening." (See: MNI INTERVIEW: Musalem Warns Easy Fed Policy 'Unadvisable')

Schmid cited some encouraging signs on inflation, including the moderation of housing costs and rents. But he wants to see "more convincing" signs that broader price pressures are heading lower. 

"I believe that cutting rates could disproportionately harm the inflation side of our mandate without providing much benefit to the employment side. And third, I don’t think that monetary policy is currently very restrictive," he said. 

"Both non-energy goods and non-housing services inflation—categories that together account for roughly 80% of consumer spending—remain above levels that have historically been consistent with the Fed’s 2% inflation target. Price increases across goods are widespread, including food prices, which are especially salient for households."