Fed official says no rate cuts yet, inflation still above target

In a speech to the Kansas Bankers Association, Schmid said the recent decline in inflation was “encouraging” and that further reports of subdued price pressures would boost his confidence that inflation is on track toward the bank’s 2 percent target power plants and therefore lower interest rates.

“We’re close, but we’re not there yet,” Schmid said. He did not give a view on when the Fed should cut interest rates: “The path of policy will be determined by the data and the strength of the economy.”

Fed policymakers rejected calls for aggressive action following a weaker-than-expected jobs report in July, when hiring slowed sharply and the unemployment rate rose to its highest level in nearly three years. Markets are betting higher than par on a half-point discount in September.

“Overall, the labor market still looks healthy,” Schmid said. “Last week’s employment report for July led many to question this resilience. But it’s important to note that many other indicators point to continued strength.”

Business contacts in the Fed’s Kansas City region have “a general tone of optimism and resilience,” he added.

Last week, policymakers kept interest rates unchanged at a more than two-decade high but signaled they were closer to lowering borrowing costs. Chairman Jerome Powell said a rate cut could be appropriate as soon as the central bank meets in September.

Schmid, who is among the Fed’s most sought-after officials, said a rise in inflation to a multi-decade high two years ago called for caution in assessing progress and “we should be looking for the worst in the data, rather than the best’.

Schmid was appointed to head the Kansas City Fed last August. The former president and chief executive officer of the Southwestern Graduate School of Banking Foundation at Southern Methodist University’s Cox School of Business was a longtime banker and bank regulator.