Fed's Schmid says there is little reason to cut rates

Jan 15 (Reuters) - Kansas City Federal Reserve President Jeff Schmid on Thursday laid out an argument against cutting interest rates, calling inflation "too hot" and predicting that Trump administration policies will build the economy's momentum and the demand that has been outpacing supply and putting upward pressure on prices.

"While the labor market has cooled, some cooling is likely necessary to keep the inflation outlook from worsening," Schmid said in remarks prepared for delivery to the Economic Club of Kansas City. "I see little reason at this point to further lower the policy rate."

Schmid's views are no secret. He dissented against the Fed's interest-rate cuts in October and December, laying out similar arguments including his view that the slowdown in the labor market that motivated his colleagues' support of interest-rate reductions is likely mostly due to structural factors and therefore won't be helped by easier monetary policy.

"I believe that cutting rates could disproportionately harm the inflation side of our mandate without providing much benefit to the employment side," Schmid said, referring to the Fed's two congressionally assigned goals, stable prices and full employment.

The 2.7% increase in consumer prices last month is consistent, he said, with 3% inflation, and inflation remains a "top concern" among his business contacts. The Fed targets 2% inflation.

And while the labor market has "clearly cooled" in recent months, he said, much of that reflects a decline in immigration, an aging population and artificial intelligence's dampening effect on hiring.

"While I am hopeful that price pressures will ease, I am reluctant to step back until I see more convincing signs that overall inflation is headed in the right direction," he said.