He said Nov. 14 that additional interest-rate cuts could do more to cement higher inflation than shore up the sagging labor market.
Schmid said he didn’t think “further cuts in interest rates” would do much to support the cooling labor market,’’ according to Bloomberg.
“However, cuts could have longer-lasting effects on inflation as our commitment to our 2% objective increasingly comes into question,” according to Schmid’s prepared remarks.
Earlier this fall, markets priced in a near-100% likelihood that the Fed would cut rates by a quarter percentage point in December.
But not on Nov. 14.
Kansas City Federal Reserve President Jeff Schmid said Nov. 14, 2025, that additional interest-rate cuts could do more to cement higher inflation than shore up the sagging labor market. His comments rattled market expectations of a December interest-rate cut.Shutterstock
The Fed’s dual mandate from Congress requires price stability and low unemployment.
Pre-shutdown data showed unemployment at a relatively stable 4.3% but with rising concerns in other aspects of the labor market, including fewer job openings and new hires.
Annual inflation is at 3%, not reaching the level of post-pandemic craziness, but still above the Fed’s own 2% target.
So balancing the mandate is tricky because:
The Fed’s quarter-percentage point cut to 3.75% to 4.00% of the benchmark Federal Funds Rate in October makes short-term borrowing cheaper, potentially spurring spending and shoring up weakness in the employment numbers.
With grocery, rent, and utility costs surging sky high, many households and businesses aren’t feeling any love for the economy.
More Federal Reserve:
Pre-shutdown data showed the price pressures stemming not just from sticky tariff inflation, but also new emerging concerns in the service sector, especially in elder-care and day-care costs.
The government shutdown means the Fed is operating in a data fog until missing leading economic indicators get back up to speed.
This has forced the central bank officials — the seven members of the Board of Governors and the 12 regional bank presidents — to rely heavily on private surveys and other data.
Schmid was one of the two Federal Open Market Committee members to dissent from its vote to lower interest rates by a quarter point in October.
He wanted to hold rates steady, arguing that still-strong economic growth could reignite inflation pressures.
Schmid stuck to his guns Nov. 14, reiterating that interest rates are only putting modest pressure on the economy at this point, which he called appropriate.
Schmid said businesses in the Kansas City Fed district have voiced continued concern about inflation.
He added that inflation appears to be more widespread than simply a tariff-driven phenomenon.
“It is not just tariffs or even primarily tariffs that has people worried,” Schmid said. “I hear concerns about rising health care costs and insurance premiums, and I hear a lot about electricity.”
Schmid said tension in the dual mandate is guiding his thoughts ahead of the Fed’s Dec. 9-10 FOMC meeting, though he added he remains open to new information in coming weeks.
Earlier this fall, markets pointed to a 100% likelihood that the Fed would cut rates by a quarter percentage point in October and in December.
The CME FedWatch Tool slumped almost 21% on Schmid’s Nov. 14 comments to a 43.6% chance of a December interest-rate cut.
“The two key supports for the market, the AI trade and the Fed cutting rates, have flipped on the margin where there’s more concerns around AI capex and the market is repricing lower the potential for a Fed rate cut,” said Keith Lerner, chief investment officer at Truist Advisory Services, noting that the selloff follows massive gains in stocks in late October.
“Where we had a couple of weeks ago, an everything rally, now you have an everything decline,” including small-cap stocks, he said, as reported by Reuters.
“The market is effectively saying that it’s more concerned about the growth side of the mandate and that the Fed could be making a mistake by waiting,” Lerner added.
Fawad Razaqzada, market analyst at City Index and FOREX.com, said in a note, as reported by Reuters, that “when margin calls and liquidations happen, traders close everything to free up margin…This is what partially explains why even gold is down in this risk off environment.”
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