Fed official warns inflation is still too high for more rate cuts
Federal Reserve officials are divided again over the direction of interest rates.
Kansas City Fed President Jeffrey Schmid has been saying since the summer that inflation is too high.
You’re probably one of the millions of Americans who agrees with him.
And while some Federal Reserve officials maintain the weakening labor market warrants lower interest rates to bolster the U.S. economy, Schmid disagrees.
In fact, he says the economy continues to show momentum. As such, monetary policy is “only modestly restrictive” in his assessment.
The Federal Open Market Committee voted Oct. 29 to slash the benchmark Federal Funds Rate target to 3.75% to 4.00%, a quarter percentage point.
The move was the second reduction in two months in an effort to boost a slowing labor market.
But Schmid wasn’t buying it. Here’s why.
Federal Reserve officials are divided again over the direction of interest rates. Fed Chair Jerome Powell noted after the October FOMC that inflation risk was a rising concern for some policymakers.Anna Moneymaker/Getty Images
The FOMC’s decision reflects the dual-mandate tension: controlling inflation without derailing employment.
The Consumer Price Index (the only leading indicator that reported September figures due to the government shutdown) came in cooler than expected at 3% year over year.
More Federal Reserve:
While inflation remains above the Fed’s 2% target, there is mounting evidence that the labor market is weakening.
Fed Chair Jerome Powell told reporters after the FOMC announcement that another interest-rate cut at the December meeting — which markets had widely expected — is not set in stone, noting that some of his colleagues are concerned about inflation.
Enter Schmid.
Schmid, a monetary hawk, preferred no change to the target range for the Federal Funds Rate.
Fed Governor Stephen I. Miran voted against the quarter percentage point cut in favor of a half percentage point.
Miran has been vocal since joining the Fed in September that the economy needs quick, jumbo cuts to stave off stagflation or a recession, echoing President Donald J. Trump’s position.
Schmid, in an Oct. 31 statement, said the labor market “is largely in balance.”
The most recent unemployment figure, delayed by the government shutdown, is 4.3%.
Interest rates should be held to keep demand down and reduce price pressures in the economy, Schmid said.
“Talking to contacts in the Kansas City Fed’s district, I hear widespread concern over continued cost increases and inflation,’’ Schmid said. “Rising healthcare costs and insurance premiums are top of mind.”
The data shows that inflation is spreading across categories, both goods and services, he said.
He voted against the independent central bank’s decision to lower interest rates this week because he’s concerned that economic growth and investment will put upward pressure on inflation.
“I do not think a 25-basis point reduction in the policy rate will do much to address stresses in the labor market that more likely than not arise from structural changes in technology and demographics,’’ Schmid said.
Dallas Fed President Lorie Logan, who is not a voting member of the FOMC this year, said in prepared remarks Oct. 31 that while inflation has come down significantly from the post-pandemic peak, it’s still not convincingly headed all the way back to the Fed’s 2% target.
“But labor demand and supply remain in balance,’’ Logan said. “The FOMC already mitigated downside risks by cutting rates at its previous meeting, in September.”
“For those reasons, I did not see a need to cut rates this week,’’ she said. “And I’d find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly.”
The CME FedWatch Tool shows a 63% chance of a quarter percentage point cut in the benchmark funds rate in December.
Markets had been forecasting a near-certain interest-rate cut in December prior to the October FOMC meeting.
Mike Sanders, head of fixed income at Madison Investments, said that Powell’s comments that a December cut is not a “foregone conclusion” reintroduced uncertainty into the markets.
“Continued inflation pressures and a stable job market could mean we’re one data point away from those aggressive market expectations for cuts not materializing,’’ Sanders said.
“If inflation stays between 2.5-3.0% and the labor market remains firm, investors should accept that policy may be closer to neutral than previously thought or hoped,’’ he added.
The next FOMC meeting is Dec. 9-10.
Related: Fed decision could lower stagnant mortgage rates
This story was originally reported by TheStreet on Nov 1, 2025, where it first appeared in the Fed section. Add TheStreet as a Preferred Source by clicking here.
