Dollar Firms as KC Fed’s Schmid Pours Cold Water on Rate Cut Bets

The US Dollar Index held firm near the 99.35 region on Thursday, supported by a resurgence of hawkish rhetoric from Federal Reserve officials. Kansas City Fed President Jeffrey Schmid delivered a stark warning to markets anticipating imminent monetary easing, stating explicitly that he sees “no reason” to lower policy rates currently.

Key Market Data

• US Dollar Index (DXY): Holding near 99.35
• US 10-Year Treasury Yield: Rebounding to 4.16%
• Headline CPI: Currently at 2.7%, real inflation estimated near 3%

Inflation is Too Hot

Speaking at the Economic Club of Kansas City, Schmid argued that the central bank‘s work on price stability is far from complete. He highlighted that while the headline Consumer Price Index (CPI) sits at 2.7%, fundamental inflationary pressures remain sticky, suggesting the true inflation rate is oscillating closer to 3%—well above the Fed’s 2% target. Schmid emphasized that maintaining a “modestly restrictive” policy stance is necessary to prevent a resurgence of price growth.

Structural vs. Cyclical Labor Cooling

Schmid addressed the cooling US labor market, offering a structural rather than cyclical diagnosis. He attributed much of the recent softening to factors such as reduced immigration, an aging demographic, and the disruption of hiring models by Artificial Intelligence (AI). Consequently, he argued that monetary policy adjustments would be an ineffective tool to address these specific labor market dynamics.

Fiscal Risks on the Horizon

Adding to the hawkish outlook, Schmid pointed to potential upside risks to demand from the incoming administration. He suggested that potential tax adjustments and deregulation under President Donald Trump could stimulate investment and spending, further complicating the inflation picture.

With US Treasury yields finding support—the 10-year yield rebounding to 4.16%—and the greenback regaining traction, the bar for a dovish pivot from the Fed appears to be rising, leaving the Dollar well-bid against major peers.