U.S. Monetary Policy Outlook

(Reuters) – The U.S. central bank should not view the limited impact of tariffs on inflation so far as a reason to cut interest rates, according to Kansas City Federal Reserve President Jeffrey Schmid. Instead, he believes this indicates that monetary policy is “appropriately calibrated.”

“With the economy still showing momentum, growing business optimism, and inflation remaining above our objective, retaining a modestly restrictive monetary policy stance is appropriate for now,” Schmid remarked at an economic development conference in Oklahoma. He emphasized that while increased tariffs have had a limited impact on inflation, this should not be seen as a chance to ease monetary policy.

Schmid highlighted his “patient approach” to changing the policy rate, currently set between 4.25% and 4.50%. He noted that this approach should not be misconstrued as merely a “wait and see” strategy, as the effects of tariffs on prices—whether temporary or persistent—will not be clear in the coming months.

He pointed out that the current policy rate is close to the neutral rate, where economic activity is neither stimulated nor restrained, and despite a recent decline in job growth, the labor market remains robust.

While the cooling labor market may limit the impact of tariffs on inflation, Schmid warned that aggressively boosting demand could lead to significant price increases.

“In my view, and through discussions with contacts, growth remains solid and inflation too high, warranting a modestly restrictive policy. However, I will adjust my views if there are significant indications of weakening demand growth,” he stated.