The President of the Federal Reserve Bank of Kansas City, Jeffrey Schmid, signaled that he was not prepared to support a rate cut given that inflation was above target 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 track to reach the central bank’s 2 percent target, which would lead to lower interest rates.
“We are close, but not quite there yet,” said Schmid. He did not comment on when the Fed should cut interest rates: “The policy course will be determined by the data and the strength of the economy.”
Fed policymakers have rejected calls for aggressive action 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 are expecting 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 in the Kansas City Fed region are “generally characterized by optimism and resilience,” he added.
Last week, monetary policymakers left interest rates unchanged at more than two-decade-high levels but signaled they were closer to cutting borrowing costs. Chairman Jerome Powell said a rate cut could be appropriate as soon as the central bank’s September meeting.
Schmid, one of 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 at the Cox School of Business at Southern Methodist University was a long-time banker and banking regulator.