The President of the Federal Reserve Bank of Kansas City explains why he voted against this week: due to inflation being "too high," he opposes interest rate cuts

The President of the Federal Reserve Bank of Kansas City, Jeff Schmid, voted against the interest rate cut for the second consecutive time. He stated that the current level of inflation remains too high, the economy continues to show vitality, and although the labor market has cooled somewhat, it remains generally balanced.

On Friday, Schmid clearly stated, “I believe that the current monetary policy stance, even if it is restrictive, is only mildly so.” This statement directly responds to discussions in the market about whether the policy is tight enough and suggests that he believes the Federal Reserve should not ease its stance too early.

Divergence in Policy Path Within the Federal Reserve

It is noteworthy that Chicago Fed President Austan Goolsbee unexpectedly cast a dissenting vote this time, marking his first disagreement since joining the Federal Reserve in 2023. Although Goolsbee stated in an interview after the meeting that he remains “one of the most optimistic members regarding interest rate cuts next year,” he believes that supporting a rate cut at this meeting was “not prudent enough.”

He explained that inflation has remained above target levels for four and a half years, with limited progress in recent months, and the government shutdown has delayed the release of several key economic data, creating a “data blackout period.” Goolsbee pointed out, “Before the blackout period began, we had already seen some concerning signals. I think a more cautious approach is to wait for more information.”

Although both Schmid and Goolsbee advocate for keeping interest rates unchanged for the time being, their emphases differ. Schmid is more focused on the persistent risks of inflation and economic overheating, while Goolsbee emphasizes the need for policy caution in the context of incomplete data. This divergence reflects the significant differences in policy paths within the Federal Reserve when weighing inflation resilience against data uncertainty.

Meanwhile, Philadelphia Fed President Anna Paulson noted that the labor market is currently in a “bent but not broken” state, with significantly heightened downside risks and broader hiring activities remaining weak. She expects inflation to gradually cool next year and believes that the current policy interest rate level of 3.5%-3.75% remains restrictive enough to gradually bring inflation back to the 2% target