U.S. central bank officials have again sent a more hawkish signal.
Officials from the U.S. central bank have again signaled a hawkish stance.
According to Zhitong Finance, Jeffrey Schmid, President of the Federal Reserve Bank of Kansas City, stated that given inflation remains above target levels, the Federal Reserve should maintain interest rates at a 'slightly restrictive' level; premature or further rate cuts could lead to prolonged high inflation.
In a prepared speech delivered on Wednesday in Albuquerque, New Mexico, Schmid noted that while current interest rate levels should theoretically constrain economic activity, this restraining effect has not been evident in practice. "With economic growth still robust and inflation remaining elevated, I do not see sufficient signs of economic cooling."
The Federal Reserve decided last month to keep interest rates unchanged, with the federal funds rate target range set at 3.5% to 3.75%. Schmid expressed support for this decision, following three consecutive rate cuts by the Fed in the final months of 2025. The current interest rate level is considered close to what most officials estimate as the 'neutral rate,' which neither stimulates nor restrains the economy.
Schmid believes that persistent price pressures indicate that demand in the U.S. economy continues to exceed supply across multiple sectors. While new technologies such as artificial intelligence may enhance productivity in the future, supporting economic expansion without fueling inflation, 'we are not there yet.' His remarks come as the latest data shows that U.S. nonfarm payrolls in January rose at the fastest pace in over a year, with the unemployment rate unexpectedly dropping to 4.3%. Schmid pointed out that economic performance was strong in 2025, and the U.S. entered 2026 with 'considerable growth momentum.'
On the issue of the balance sheet, Schmid reiterated that the structure of government bonds held by the Federal Reserve should align more closely with the overall market composition. He stated that by concentrating additional purchases more heavily on short-term government bonds, the Fed is moving in this direction. Maintaining a large-scale, long-duration balance sheet that includes mortgage-backed securities for an extended period could blur the lines between monetary and fiscal policy, posing risks to the independence of the central bank.
Editor/Stephen
