Fed’s Jeffrey Schmid Warns Rate Cuts Could Have Long-Lasting Impact On Inflation

• Schmid noted that there have been concerns over the pace of price increases.
• He said that tariffs will have only a limited, though drawn-out, effect on inflation.
• In late October, the Federal Reserve cut the key borrowing rate by 25 basis points, bringing down the federal funds rate to the 3.75% to 4% range.

Federal Reserve Bank of Kansas City President Jeffrey Schmid said on Friday that further interest rate cuts could have longer-lasting effects on inflation.

“I do not think further cuts in interest rates will do much to patch over any cracks in the labor market—stresses that more likely than not arise from structural changes in technology and immigration policy,” Schmid said at the 2025 Energy Conference hosted by the Federal Reserve Banks of Kansas City and Dallas in Denver.

He noted that inflation has been above the Fed’s 2% objective for over four years. “I don’t think we have room to be complacent. History has shown us that persistent inflation can shift the psychology around price-setting, and inflation can become ingrained,” Schmid said.

“Were that to occur, re-anchoring inflation at 2% would be more difficult and costly,” he added.

Concerns On Price Increases

Schmid noted that there have been concerns over the pace of price increases. “Some of this has to do with the effect of tariffs on input prices, but it is not just tariffs—or even primarily tariffs—that has people worried,” he said.

“I hear concerns about rising health care costs and insurance premiums, and I hear a lot about electricity. Overall, the message is that inflation is too high. And I agree: Inflation is too high,” Schmid added.

He said that tariffs will have only a limited, though drawn-out, effect on inflation.

Interest Rate Cuts

In late October, the Federal Reserve cut the key borrowing rate by 25 basis points, bringing down the federal funds rate to the 3.75% to 4% range. The Federal Open Market Committee had then noted that economic activity had been expanding at a moderate pace.

This was the second rate cut announced by the Fed in 2025, following a similar 25-basis-point cut in September.

At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.40% and the Invesco QQQ Trust ETF (QQQ) rose 0.61% in afternoon trading on Friday. 

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