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Fed’s Schmid Says Policy Stance Still Appropriate for Time Being

(Bloomberg) -- Federal Reserve Bank of Kansas City President Jeff Schmid said he favors keeping interest rates on hold for the time being to prevent robust economic activity from adding to inflation pressures.

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“With the economy still showing momentum, growing business optimism, and inflation still stuck above our objective, retaining a modestly restrictive monetary policy stance remains appropriate for the time being,” Schmid said Tuesday in remarks prepared for an event in Oklahoma City.

He added that he’s ready to change his views if demand growth starts “weakening significantly.”

Fed officials have left interest rates on hold at each of their five meetings this year as they waited to see how tariffs and other policies would impact the economy. With the latest data showing a sharp slowdown in hiring and relatively muted inflation, investors are pricing in a quarter-point rate cut at the next policy meeting in September.

Schmid, who votes on monetary policy decisions this year, said the current environment of moderate demand growth and a cooling labor market is helping temper the pass—through of tariffs to inflation, and that the Fed has a key role to play in that.

“The Fed cannot offset the effect of higher tariffs on prices, but what the Fed can do is monitor demand growth, provide space for the economy to adjust and keep inflation on a path to 2%,” Schmid said. “Overall, I am anticipating a relatively muted effect of tariffs on inflation, but I view that as a sign that policy is appropriately calibrated rather than a sign that the policy rate should be cut.”

A report released earlier Tuesday showed the consumer price index, excluding volatile food and energy prices, increased 0.3% in July from a month earlier. While that marked an acceleration, the data suggested the impact of tariffs on goods prices was more modest than in June.