In 2025, the "hawkish" voices of the Federal Reserve FOMC voting members are loud and clear: not ready to support rate cuts yet

According to the financial news app Zhitong Finance, Jeffrey Schmid, the President of the Kansas City Federal Reserve who will have voting rights on the FOMC monetary policy in 2025, stated that despite a slight cooling in the labor market, the US inflation rate remains above target. The Federal Reserve is still in an anti-inflation process, and the labor market still appears to be very healthy. Therefore, he is not yet prepared to support a reduction in the benchmark interest rate by the Federal Reserve.

Schmid, whose monetary policy stance is clearly hawkish, stated during a speech at the Kansas Bankers Association in the United States that the recent downward trend in inflation is indeed "encouraging." Further economic data reports on lower price pressures will enhance his confidence in lowering interest rates, that is, more data proving that inflation is moving towards the Federal Reserve's anchored 2% target, thereby supporting a rate cut by the Federal Reserve.

Schmid stated in his speech, "We are indeed very close to the (2% inflation) target, but we have not fully achieved it yet." However, he did not express his opinion on when the Federal Reserve should cut interest rates, but instead stated, "The Federal Reserve's monetary policy path will be determined by data and economic strength."

After the July non-farm payroll report came in below expectations and the unemployment rate unexpectedly rose, triggering the "Sam Rule," some Federal Reserve policymakers clearly rejected market calls for aggressive rate cuts. Richmond Federal Reserve President Barkin pointed out on the same day that the Federal Reserve currently has time to assess whether the US economy is entering a normalization track or whether more proactive measures are needed to address potential economic weakness, rather than immediately announcing an emergency rate cut.

The soft July non-farm payroll report showed a significant slowdown in business hiring at the time, with the unemployment rate rising to its highest level in nearly three years. Subsequently, the market began pricing in the possibility of a 50 basis point rate cut in September, rather than the previously priced 25 basis point rate cut before the July non-farm payroll report.

The interest rate swap market once bet that there was a 60% chance of an emergency rate cut by the Federal Reserve in the next week, indicating that the market's expected rate cut timing was much earlier than the next scheduled meeting in September. Current swap pricing indicates that the Federal Reserve is likely to cut rates by 50 basis points in September, rather than the previously priced 25 basis points before the July unemployment rate announcement. At the same time, the swap market also bets on a further 50 basis point rate cut in November and a 25 basis point rate cut in December.

Regarding the US labor market, which global investors are focusing on, Schmid stated in his speech, "Overall, the US labor market remains healthy." "The July non-farm payroll report released last week has raised doubts about this resilience for many people. However, it is worth noting that many other indicators indicate that the US economy remains strong."

He added that the business contacts in the region covered by the Kansas City Federal Reserve Bank are "generally optimistic and resilient."

Last week, Federal Reserve policymakers kept the US benchmark interest rate unchanged at its highest level in over 20 years, but hinted that they are closer to the confidence needed to lower borrowing costs. Federal Reserve Chairman Jerome Powell even directly stated in response to reporters about the timing of rate cuts that if economic data shows inflation is sustainably moving towards 2%, the Federal Reserve may announce a rate cut at the September monetary policy meeting Schmidt is a regional Fed president who is relatively hawkish in his policy stance among Fed policymakers. He stated that two years ago, the inflation rate soared to the highest level in decades, which requires us to maintain a cautious attitude when evaluating progress in combating inflation. "We should look for the worst parts of the data, not the best," said the Kansas City Fed president.

It is understood that Schmidt was appointed as the Kansas City Fed president in August last year. With over 40 years of experience in banking and bank regulation, Schmidt previously served as the Cox School of Business Southwest Bank Research Fellow Foundation Chair and CEO at Southern Methodist University (SMU), leading the foundation in providing career development and education for banking professionals before joining the Kansas City Federal Reserve Bank in August 2023.

Schmidt attends every monetary policy meeting of the Federal Open Market Committee (FOMC) of the Fed and, following the established rotation schedule of the Federal Reserve Banks, he will become a voting member of the FOMC with monetary policy rights in 2025