A lower federal funds rate usually helps lower the unemployment rate by making it cheaper for businesses to borrow money, although Kansas City Fed President Jeff Schmid doesn’t believe that to be the case this time due to structural changes in the labor market.
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“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,” said Schmid on Friday.
Inflation Driven by More Than Just Tariffs, Says Schmid
At the same time, Schmid warned that additional rate cuts could have “longer-lasting effects on inflation” and steer the Fed away from its inflation target of 2%. In addition, Schmid believes that factors other than the Trump administration’s tariffs are contributing to higher prices, such as rising electricity and healthcare costs.
During the October Federal Open Market Committee (FOMC) meeting, Schmid was the only voting member to dissent in favor of keeping rates unchanged. The Fed will make its next interest rate decision on December 10.
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