US Stock Market | Fed's Schmid warns inflation still too hot, signals no urgency for Fed easing

Kansas City Federal Reserve President Jeffrey Schmid on Tuesday reiterated his opposition to further interest-rate cuts, arguing that inflation remains too elevated and the U.S. labor market is broadly in balance.

In remarks prepared for delivery to the Metro Denver Executive Club, Schmid said inflation has remained above the Federal Reserve’s 2% target for nearly five years. He warned that demand continues to outstrip supply, pushing up services prices at a pace inconsistent with a sustained return to the central bank’s inflation objective. According to Reuters, Schmid stressed that policymakers cannot afford complacency while price pressures remain persistent.

Schmid did not directly address the economic fallout from the escalating conflict involving Iran, though Reuters reported that the volatile situation in the oil-rich Middle East could intensify concerns about renewed inflationary pressures, particularly through energy markets.


The Kansas City Fed chief has consistently opposed additional monetary easing. Reuters noted that he dissented on two rate cuts last year and supported the Federal Reserve’s decision last month to keep its benchmark short-term interest rate in the 3.50% to 3.75% range.

Inflation is currently running near 3%, Schmid said, highlighting the economic cost of elevated prices. A one-percentage-point increase in inflation reduces U.S. household purchasing power by an estimated $300 billion, he added, underscoring the tangible impact on consumers.

Financial markets had earlier anticipated that signs of labor market deterioration, cooling inflation, or both would prompt the Federal Reserve to resume rate cuts by midyear. However, Reuters reported that since the U.S. and Israel launched strikes on Iran over the weekend, traders have pushed expectations for the next rate cut further into the year, reflecting heightened uncertainty and inflation risks tied to geopolitical tensions.

Schmid said he remains optimistic about economic growth over the coming year, citing encouraging signals from business contacts. He also expressed confidence that tax reforms under the administration of Donald Trump would provide a tailwind to economic expansion.

Also read: Global Market | Investors make a dash for cash as Iran crisis upends markets

At the same time, he dismissed arguments that advances in artificial intelligence are currently driving productivity gains strong enough to enable faster, non-inflationary growth. While acknowledging the longer-term potential of AI and other innovations to support a supply-driven expansion cycle, Schmid indicated that current inflation readings suggest the economy has not yet reached that stage.

Overall, his remarks reinforced a cautious stance within the Federal Reserve, emphasizing vigilance against persistent inflation even as markets weigh geopolitical risks and evolving growth prospects.

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