Fed’s Schmid says there is time to study tariff effects before rate cuts

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By Howard Schneider

WASHINGTON (Reuters) -The U.S. Federal Reserve has time to study the effect of rising import tariffs on prices and economic growth before deciding on further interest rate cuts, Kansas City Fed President Jeff Schmid said on Tuesday.

“The current posture of monetary policy, which has been characterized as ‘wait-and-see,’ is appropriate,” Schmid said in remarks prepared for delivery to an agricultural summit in Nebraska.

“The resilience of the economy gives us the time to observe how prices and the economy develop,” before changing the benchmark policy rate, said Schmid, a voter this year on the Fed’s rate-setting Federal Open Market Committee, which next meets on July 29-30.

The Fed has held its benchmark rate steady in a range from 4.25% to 4.5% since December, despite calls from President Donald Trump for rate cuts.

Fed officials in recent projections anticipate two rate cuts by the end of the year, but have highlighted uncertainty around trade policy and in general expect to see slower growth, higher unemployment and higher inflation in coming months. 

Inflation remains above the Fed’s 2% target, and “contacts almost uniformly expect increased tariffs to push up prices and to weigh on activity,” Schmid said, adding it seemed “likely” the Fed’s inflation and job goals “will come into conflict.”

But “there is far less clarity on when and by how much,” said Schmid, an argument for leaving interest rates unchanged until the economy’s direction is clearer.

(Reporting by Howard Schneider; Editing by Jamie Freed)