Kansas City Fed President and CEO Jeff Schmid delivered remarks to the Rotary Club of Oklahoma City Tuesday, discussing monetary policy and the economic outlook. Schmid addressed consumer spending, productivity, Artificial Intelligence, labor and demographic trends, energy prices, and inflation.
He talked about economic tailwinds and headwinds that are affecting consumer spending, many of which have implications for the continued strong beef demand in the face of inflation. Following is an edited text of the tailwinds part of his speech. The headwinds section is slated for Thursday’s comments.
SPRING TRENDS
I see several fundamental strengths in the US economy including solid demand momentum, strong productivity gains and relatively low unemployment.
The economy expanded by a little more than 2% last year, in line with the average pace of growth in recent decades. Estimates for growth in the first quarter of 2026 suggested the economy continued to expand at about a 2% annualized rate. This steady growth rate was driven by business spending related to AI as well as resilient consumer demand.
While AI has increased the pace of investment in the economy, consumption remains the largest driver of GDP growth, representing 2/3 of overall spending. Consumer-demand strength has been underpinned by rising spending on healthcare.
As a nation we are aging. The share of the US population over the age of 75 is projected to soar in coming decades. An aging population is a headwind to the workforce, but it is boosting demand for healthcare services and pharmaceuticals. In 2025, healthcare spending was the largest single contributor to consumption growth.
ACCOMODATIVE POLICY
In addition to the growing demand for healthcare, consumer spending was supported by accommodative fiscal policy and strong aggregate household balance sheets. Relative to recent years, many households are seeing larger tax refunds, which are increasing disposable income.
At the same time, household net worth relative to income remains near all-time highs from large increases in equity and home prices over the past few years. These high levels of wealth are leading many to spend more and save less. With tax refunds hitting people’s pockets and saving rates relatively low, consumer demand remained resilient.
The second tailwind I see is the strong pace of productivity growth. While GDP numbers have been solid, this growth has come about with zero growth in the working age population. Instead of adding workers, growth is being driven by increasing output per worker.
While AI is certainly all the buzz these days, according to research by my staff it is not the primary force behind the rise in productivity. Other factors, like reductions in labor market churn and the high pace of business formation likely are more important.
Compared to peer countries, US productivity has been a standout in recent years. This suggests American entrepreneurialism and ingenuity may again be at work, features that made the American economy the most dynamic and innovative in the world for much of its 250-year history.
A third tailwind for the economy is the relatively low rate of unemployment. The unemployment rate, at 4.4%, is somewhat higher than it was last year but is still low relative to historical norms.
Moreover, prime-age individuals between 25 and 54 who are less affected by schooling and retirement decisions are participating in the labor market at higher rates than we’ve seen in decades. The employment-to-population ratio for prime-age workers is roughly at 2019 levels and well above average employment rates over the last 20 years. Simply put, with a large share of prime-age workers employed and earning paychecks, the labor market continues to support growth.
Much of the concern around the labor market stems from the very low pace of hiring. In fact, job growth averaged nearly zero over the past six months.
However, there also was very little growth in the size of the working-age population. Therefore, the economy doesn’t need to add many jobs to keep the unemployment rate stable, notwithstanding some risks to employment during this period of structural change—stemming from aging and slower labor force growth—it seems the labor market is adjusting and remains broadly in balance.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $234.90 per cwt to $238.21, compared with last week’s range of $234.93 to $239.00 per cwt. FOB dressed steers and heifers went for $370.72 per cwt to $374.39, compared with $369.00 to $373.68.
The USDA choice cutout Tuesday was up $1.39 per cwt at $395.49 while select was up $1.92 at $392.93. The choice/select spread narrowed to $2.56 from $3.09 with 77 loads of fabricated product and 19 loads of trimmings and grinds sold into the spot market.
The USDA-listed the weighted average wholesale price for fresh 90% lean beef as $449.13 per cwt, and 50% beef was $188.93
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $0.90 to $1.05 a bushel over the May corn contract, which settled at $4.57 3/4, up $0.02.
The CME Feeder Cattle Index for the seven days ended Monday was $365.93 per cwt, up $0.81. This compares with Tuesday’s Apr contract settlement of $369.12, up $5.82.