Kansas City Fed President Jeffrey Schmid emphasized a measured approach to monetary policy, stating that while he supports reducing the restrictiveness of current rates, his preference is to “avoid outsized moves.”
“Lowering rates in a gradual fashion would provide time to observe the economy’s reaction to our interest rate adjustments and give us the space to assess at what level interest rates are neither restricting nor boosting the economy,” Schmid explained.
He also highlighted that the neutral rate, the level where interest rates neither stimulate nor restrict economic growth, is likely to be “well above” the levels seen during the pre-pandemic period.
Schmid also warned that aggressive rate cuts could foster an expectation of continued rapid cuts, which could amplify financial market volatility. “My belief is that a cautious and gradual approach to policy adjustments would be best suited for this uncertain environment,” he said.
