Fed’s Schmid Warns: Rate Cuts Can’t Patch ‘Cracks in the Labor Market’ – Here’s Why

The Federal Reserve’s Schmid just dropped a truth bomb: slashing rates won’t magically heal the labor market’s fractures. As Wall Street clamors for cheaper money, reality bites—structural issues demand more than monetary Band-Aids.

Key Takeaways:

- Rate cuts ≠ labor market salvation: Schmid highlights the limits of monetary policy when facing deep-seated employment vulnerabilities.

- The great disconnect: While traders price in dovish pivots, workforce participation and wage growth tell a different story.

- Fiscal policy’s turn? The speech hints that Congress might need to step up—though good luck getting bipartisan action in an election year.

Bottom line: The Fed’s toolkit looks increasingly blunt against complex labor market challenges. But hey, at least the stock market got its liquidity fix—until the next crisis, anyway.

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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.