Jeffrey Schmid, the president of the Federal Reserve Bank of Kansas City, confirmed that U.S. interest rates should remain steady at their current levels, emphasizing that the limited impact of tariffs on inflation does not constitute a sufficient reason to lower rates. On the contrary, this reflects that the current monetary policy is appropriate for the existing economic conditions.
Schmid's statements come at a time when discussions among some Federal Reserve members are increasing regarding the possibility of easing monetary policy and lowering rates in the near future, making his position more hawkish compared to his colleagues.
Schmid clarified during his participation in the Economic Development Conference in Oklahoma that the U.S. economy still shows strong momentum with continued business optimism, despite inflation rates remaining above the central bank's target, justifying the need to maintain a somewhat tight monetary policy.
He pointed out that the slight impact of tariffs on inflation should be an incentive to maintain current interest rates, rather than reduce them, stressing that this stance does not mean a passive wait, but depends on a careful assessment of economic data.
He added that the current interest rate range of 4.25% to 4.50% is still close to the neutral rate that neither stimulates nor suppresses the economy.
Despite a significant decline in job growth in recent months, Schmid sees the labor market as still strong enough to support the existing monetary policy, warning that any sudden rise in demand could raise inflationary pressures and complicate efforts to control it.
He emphasized that sustained high inflation alongside strong economic growth calls for keeping monetary policy in a moderately tight framework, but he added that if clear signs of weakened demand emerge, he may adjust his position accordingly based on economic developments.
In this way, the president of the Federal Reserve Bank of Kansas City sends a clear message to the markets that lowering interest rates at this time is not the optimal choice, and that maintaining current interest rates is the most suitable option to keep the balance between supply and demand and ensure price stability.
