Kansas City Fed President: Inflation remains above target levels, should maintain a "slightly restrictive" stance on interest rates.

Federal Reserve officials once again released a hawkish signal. President of the Federal Reserve Bank of Kansas City, Jeffrey Schmidt, stated that in the context of inflation persisting above target levels, the Fed should maintain interest rates at a "slightly restrictive" range. Implementing premature or further rate cuts may lead to prolonged high inflation. Schmidt, in a prepared speech delivered on Wednesday in Albuquerque, New Mexico, pointed out that the current level of interest rates should provide a certain constraint on economic activity, but in reality, this restraining effect is not apparent. "In a situation where economic growth still has momentum and inflation remains on the high side, I don't see enough signs of cooling in the economy." The Fed decided last month to keep interest rates unchanged, with a federal funds rate target range of 3.5% to 3.75%. Schmidt supported this decision, as the Fed had already cut rates three times in the last few months of 2025. The current level of interest rates is considered close to the "neutral rate" estimated by most officials, which neither stimulates nor suppresses the economy. Schmidt believes that sustained price pressures indicate that demand in various sectors of the U.S. economy still exceeds supply. Although new technologies such as artificial intelligence may drive productivity improvements in the future, supporting economic expansion without pushing up inflation, "we have not reached that stage yet." His comments come as the latest data shows that nonfarm payroll growth in January reached a one-year high, with the unemployment rate unexpectedly dropping to 4.3%. Schmidt noted that the economy performed strongly in 2025 and the U.S. still had "considerable momentum for growth" as it entered 2026. Regarding the balance sheet issue, Schmidt reiterated that the structure of U.S. Treasury holdings by the Fed should be closer to the overall market composition. He mentioned that by concentrating more on purchasing short-term Treasury bonds, the Fed is moving in that direction. Maintaining a large-sized balance sheet with long duration and including mortgage-backed securities may blur the boundaries between monetary and fiscal policy, posing risks to central bank independence.