Kansas City Fed President's Remarks on Interest Rates

(Reuters) – Kansas City Federal Reserve Bank President Jeffrey Schmid stated on Wednesday that the U.S. central bank's interest-rate cuts reflect its growing confidence in a decrease in inflation, although he did not indicate how many more rate cuts could be appropriate.

Schmid explained that the Fed's belief in inflation moving toward its 2% target is partly based on recent improvements in the balance of labor and product markets. He remarked at an energy conference hosted by the Dallas Fed, saying that while it's time to start easing monetary policy restrictions, the extent of future interest rate declines remains uncertain.

He did not provide specifics on the labor market or current inflation but highlighted potential long-term influences on monetary policy, including significant structural changes in the economy.

Schmid suggested that if recent higher productivity growth continues, it could lead to stronger economic performance with less upward price pressure. However, he cautioned that unmet energy demand from sectors like artificial intelligence could hinder economic growth.

He also noted that slowing population growth and increasing fiscal deficits might restrict long-term economic progress.

“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.”