On Wednesday, Kansas City Federal Reserve Bank President Jeffrey Schmid said the U.S. central bank’s interest-rate cuts to date acknowledge its growing confidence that inflation is headed down, but gave no steer on how many more rate cuts he feels may be appropriate.
The Fed’s confidence that inflation is on the path to reach its 2% target is “based in part on signs that both labor and product markets have come into better balance in recent months,” Schmid said in remarks prepared for delivery to an energy conference at the Dallas Fed. “While now is the time to begin dialing back the restrictiveness of monetary policy, it remains to be seen how much further interest rates will decline or where they might eventually settle.”
Schmid did not give a detailed account of his view of the current state of the labor market or of inflation, instead using his speech to lay out a longer-term perspective on big structural changes in the economy that he expects to influence longer-term monetary policy in conflicting ways.
If recent higher productivity growth persists, the economy could run stronger with less upward price pressures than otherwise, he said, even as he also warned that failure to meet increased demand for energy to fuel, among other things, data centers for artificial intelligence development, could potentially slow economic growth.
Slowing population growth and rising fiscal deficits also will tend to hamper economic gains over the longer term, he said.
“As an optimist, my hope is that productivity growth can outrun both demographics and debt,” Schmid said. “But as a central banker, I will not let my enthusiasm get ahead of the data or my commitment to the Fed’s dual mandate of price stability and full employment.”
