Fed's Schmid says he's more confident inflation heading to 2% goal

(Reuters) - Kansas City Federal Reserve Bank President Jeff Schmid, one of the U.S. central bank's more hawkish policymakers, said on Thursday that recent "encouraging" data gives him more confidence that inflation is cooling and sets the table for a reduction in the Fed's interest rate.

"Given the multi-decade shock to inflation that we have experienced, we should be looking for the worst in the data rather than the best," Schmid said, noting that prices can be volatile and the Fed needs "longer periods" to be sure of inflation's path.

"However, if inflation continues to come in low, my confidence will grow that we are on track to meet the price stability part of our mandate, and it will be appropriate to adjust the stance of policy," he said in remarks prepared for delivery to the Kansas Bankers Association's annual meeting in Colorado Springs, Colorado.

With inflation at around 2.5% and the Fed's goal at 2%, he said, the Fed is "close, but we are still not quite there."

The Fed last week opted to leave the policy rate in the 5.25%-5.50% range, where it has been for more than a year, but signaled it may start reducing borrowing costs next month as inflation and employment risks are more nearly balanced.

A weak jobs report two days after the policy decision sparked fears in financial markets that the Fed will need to respond aggressively to cushion the economy from recession.

Schmid pushed back on that view, describing the economy as resilient, consumer demand strong, and the labor market as noticeably cooling but still "quite healthy," when indicators beyond the rise in the unemployment rate are considered.

Given those conditions, he said, the Fed's current policy stance "is not that restrictive." And to get further declines in inflation, he added, the labor market needs to cool further.

"This story could change if conditions were to weaken considerably more," he said, but in all he signaled that he remains on a wait-and-watch mode.

"The path of policy will be determined by the data and the strength of the economy," he said. "With the tremendous shocks that the economy has endured so far this decade, I would not want to assume any particular path or endpoint for the policy rate."

(Reporting by Ann Saphir; Editing by Leslie Adler)