Fed’s Schmid Says Modestly Restrictive Policy Still Appropriate

Federal Reserve Bank of Kansas City President Jeff Schmid said he thinks inflation risks are marginally higher than risks to the labor market, though monetary policy is in a good place as policymakers consider an interest-rate adjustment next month.

“As you get closer to the optimum dual mandate numbers it actually becomes more difficult to make decisions on the margins relative to where that policy rate should go,” Schmid said in a Bloomberg Television interview aired on Thursday.

Schmid spoke at the Jackson Lake Lodge in Grand Teton National Park, where later Thursday he will kick off his bank’s annual conference, the Fed’s flagship event. Central bankers and economists from around the world are on their way to the gathering, which will focus on structural changes in the labor market. Chair Jerome Powell will speak Friday.

Schmid said the debate around when to cut interest rates now comes down to whether individual policymakers think policy is too restrictive or not. “I think they’re modestly restrictive,” he said, adding “I think we’re on a good path.” Schmid spoke with Michael McKee Wednesday on the sidelines of the Jackson Hole Economic Policy Symposium.

Fed watchers will be looking to Powell’s conference speech to see whether he gives any indication of what the Fed might do at its next meeting in September. It may be hard for him to give a definitive signal, though, especially with some of his colleagues not yet in a hurry to lower rates.

Consumer and business price data released last week showed inflation has accelerated in recent months. The figures also provided fresh evidence that firms have been able to pass some import-cost increases on to consumers.

At the same time, hiring has slowed over the summer, with employers adding just 35,000 workers to payrolls monthly, on average, over the past three months.

In a separate interview with Bloomberg’s Odd Lots podcast, Schmid said the producer price index reading, which showed wholesale inflation accelerated in July by the most in three years, “was a bit eye-opening.” Policymakers will be watching consumer price data later this month and in September ahead of the meeting, he said.

Fed officials have kept interest rates unchanged at each of their meetings this year, after lowering them by a full percentage point in the last few months of 2024. While the majority of policymakers in June estimated that they’d deliver two rate cuts this year, a sizeable minority saw just one or no cuts at all.

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