Fed’s Schmid: Further rate cuts could allow higher inflation to persist for longer

• Further rate cuts could allow higher inflation to persist for longer.

• Not seeing evidence current level of interest rates is restraining economy.

• Appropriate to keep restrictive monetary policy with inflation close to 3%.

• Productivity improvements could allow faster growth without inflation, but ‘we are not there yet’.

• Current inflation rate indicates still-strong demand is outpacing improvements in supply.

• There are opportunities to reduce bank reserve demand and thus lower the Fed’s balance sheet.

• Price shocks are ‘transitory’ based on Central Bank’s response, Fed needs to keep focus on 2% inflation target.

• Recent improvements in productivity could be about workers staying in jobs longer, as opposed to stemming solely from technology.

Schmid isn’t a voter until 2028 so he’s not going to be able to have a real say if the split in the FOMC is close under Kevin Warsh.

The President of the Kansas City Fed is widely considered one of the most hawkish members of the Federal Reserve. His comments today (February 11, 2026) reinforce a long-standing skepticism toward the recent easing cycle.

Schmid is leaning harder into the idea that the labor market’s behavior is structural. By crediting “workers staying in jobs longer” for productivity rather than just technology, he is suggesting that the economy is naturally resilient and doesn’t need the “crutch” of lower interest rates.

While other officials have signaled a “wait and see” approach, Schmid’s comment that he sees no evidence of rates restraining the economy is a direct challenge to the “dovish” narrative that the Fed needs to cut to avoid a recession.

Notably, this speech was almost-certainly written before he had the non-farm payrolls data and the strong numbers only reinforce his point. The market continues to see two rate cuts this year but I think that bakes in a slowdown in hiring and a further drop in inflation. Schmid doesn’t see that.