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Kansas Fed President Schmid Says Rates Are Where They Should Be

Oct 06, 2025 17:00:00 -0400 by Megan Leonhardt | #Federal Reserve

Jeffrey Schmid, president and chief executive officer of the Federal Reserve Bank of Kansas City. (Kent Nishimura/Bloomberg)

Key Points

At least one Federal Reserve policymaker doesn’t see a dire need for lower rates amid rising inflation. Kansas City Fed President Jeff Schmid said on Monday that the central bank’s rate policy is only slightly restrictive and that is the right place to be for now.

Schmid views the current level of inflation as too high, contending that the central bank shouldn’t lose sight of its goal to bring price growth back to the 2% target.

“My view is that the Fed must maintain its credibility on inflation,” Schmid said in prepared remarks to the CFA Society Kansas City. “History has shown that while all inflations are universally disliked, not all inflations are equally costly to fight. Inflation driven by imbalances between supply and demand, such as during the pandemic, can be brought down without a large increase in unemployment or a recession.”

The Federal Open Market Committee lowered the federal-funds rate by a quarter percentage point to a target range of 4%–4.25% at the September policy meeting on concerns of growing labor market weakness. It was a move that Schmid, a voting member of the committee, supported. “Given signs that the labor market has cooled, I viewed this cut as being an appropriate risk-management strategy as the Fed balanced the risks to inflation and employment,” Schmid said.

With the Personal Consumption Expenditures Price Index, the central bank’s preferred inflation gauge, measuring 2.7% as of August, additional cuts may not find favor with Schmid. Core inflation, which excludes food and energy costs, was 2.9% year over year.

Schmid pointed out that prices for durable goods—including long-lasting items such as cars, appliances and furniture—are rising. That is a concern for Schmid because while the inflation rate for a composite of these goods is only a little over 1%, the fact that durable goods prices are increasing at all is notable. “Outside of the disruption of the pandemic, the composite price of durable goods has declined consistently for the past three decades,” he noted.

Additionally, price increases are becoming more widespread. About 70% of consumption categories reported price increases at the start of the year. But by August, almost 80% of categories had reported increasing prices, Schmid said.

“With inflation still too high, monetary policy should lean against demand growth to allow the space for supply to grow and relieve price pressures in the economy,” he said. “The current environment is one where aggressively boosting demand could raise the risk of an outsized increase in prices, as firms gain pricing power and increase the passthrough of tariffs to consumers.”

When it comes to the effects of tariffs, Schmid anticipates levies will lead to a relatively muted impact on inflation. But he says that is a sign that policy is “appropriately calibrated,” rather than a sign that the policy rate should be aggressively lowered.

He doesn’t take much comfort in the fact that most measures of inflation expectations haven’t dramatically increased, either. “I view inflation expectations not as an input, or signal, for the Fed to respond to, but as the output of the policy decisions that the Fed makes,” Schmid said.

Weaker labor conditions that have emerged in recent months are something that Schmid is keeping a close eye on. He noted that the cooling job market is consistent with relieving price pressure and returning inflation to the Fed’s 2% target. Additionally, he pointed out that a number of indicators still signal the labor market is in balance, with unemployment at 4.3% as of August.

“Looking across the range of labor data included in the Kansas City Fed’s aggregate Labor Market Condition Indicators suggests a labor market that has cooled but remains healthy,” Schmid added.

Schmid plans to maintain a data-dependent approach to any further policy adjustments, he said. He’s hopeful that the government will reopen and official data will be published soon; he is also monitoring alternative labor and price data closely.

Write to Megan Leonhardt at megan.leonhardt@barrons.com