Uncertain Prospects for Another Fed Rate Cut?

On Thursday Eastern Time, Jeff Schmid, President of the Federal Reserve Bank of Kansas City and a voting member this year, stated that he believes the Federal Reserve may not need to lower interest rates again in the short term, as there is still a need to continue reducing inflation levels.

Schmid's speech primarily focused on the Federal Reserve's role in supervising and regulating banks. He emphasized the critical importance of the Fed's independence in this area.

"We often discuss the importance of the Federal Reserve being free from political interests and its regional structure for effective monetary policy," Schmid said. "However, the independence of the Federal Reserve System and the close ties between the regional Reserve Banks and their local economies are equally crucial for sound supervision and regulation."

Schmid stated that regulators and regulatory bodies independent of political considerations can make decisions focused on long-term financial stability, maintain flexibility when responding to instability, and help enhance public trust in the banking system.

Before joining the Fed in 2023, Schmid had served as a bank regulator and a bank director. He expressed regret that some advocate for completely stripping these regulatory functions from the Fed—or making these parts of the Fed more directly controlled by the President.

However, the Fed's newest monetary policy committee member, White House economic adviser Stephen Milan, is a proponent of the aforementioned views. He received a recent appointment from President Trump last month to fill the vacant Fed position and supported a 50 basis point rate cut at last week's policy meeting.

"I think this view is mistaken and could lead to unintended consequences that are often not fully considered," Schmid said.