The President of the Federal Reserve Bank of Kansas City, Jeffrey Schmid, signaled that he was not prepared to support a rate cut on condition that inflation was above goal and that the labor market was still healthy despite some slowdown.
Speaking to the Kansas Bankers Association, Schmid said the recent decline in inflation was “encouraging” and further reports of low price pressures would reinforce his confidence that inflation was on target to achieve the central bank’s 2 percent goal, which might result in lower rates of interest.
“We are close, but not quite there yet,” said Schmid. He didn’t comment on when the Fed should cut rates of interest: “The policy course will be determined by the data and the strength of the economy.”
Fed policymakers have rejected calls for aggressive motion after the economy turned out weaker than expected. Job report in July, when hiring fell sharply and the unemployment rate rose to its highest level in nearly three years. Markets predict a half-percentage point cut in September.
“Overall, the labor market still appears healthy,” Schmid said. “Last week’s July employment report caused many to question that resilience. But it’s important to note that many other indicators point to continued strength.”
Business contacts within the Kansas City Fed region are “generally characterized by optimism and resilience,” he added.
Last week, monetary policymakers left rates of interest unchanged at greater than two-decade-high levels but signaled they were closer to cutting borrowing costs. Chairman Jerome Powell said a rate cut might be appropriate as soon because the central bank’s September meeting.
Schmid, one in all the more hawkish Fed officials, said the rise in inflation to a multi-year high two years ago requires caution in assessing progress and: “We should look for the worst in the data rather than the best.”
Schmid was appointed head of the Kansas City Fed last August. The former president and CEO of the Southwestern Graduate School of Banking Foundation on the Cox School of Business at Southern Methodist University was a long-time banker and banking regulator.
