Kansas City Fed President Supports Cautious Rate Cuts

(Reuters) – Kansas City Federal Reserve Bank President Jeffrey Schmid expressed support on Monday for a "cautious and deliberate" approach to interest rate cuts as inflation approaches the Fed's 2% target and the labor market normalizes.

> "While I support dialing back the restrictiveness of policy, my preference would be to avoid outsized moves, especially given uncertainty over the eventual destination of policy and my desire to avoid contributing to financial market volatility," Schmid noted during prepared remarks for the Certified Financial Analysts Society of Kansas City, Missouri.

He emphasized that lowering rates gradually would allow time to assess the economy’s reaction and determine an interest rate level that neither restricts nor boosts economic activity.

Last month, the Fed cut the policy rate by a larger-than-expected 0.5 percentage points, indicating that most policymakers anticipate further, likely smaller, reductions.

Though Schmid did not specify how quickly or extensively rates should be cut, his comments indicate a belief that the central bank should proceed cautiously.

He commented on the economy likely growing at a 3% pace last quarter, bolstered by strong consumer spending and a labor market that is stabilizing. Given this strength, he stated that "it seems unlikely that monetary policy is all that restrictive."

Furthermore, he suggested that the future level of interest rates would likely settle "well above" the levels seen in the pre-pandemic decade.

Schmid warned that significant cuts could suggest an ongoing trend of rapid rate reductions, which raises the risk of increased financial market volatility.

> "My belief is that a cautious and gradual approach to policy adjustments would be best suited for this uncertain environment," Schmid concluded.