Fed's Schmid: Inflation Remains a Key Issue for the Fed

Odaily reported that Federal Reserve's Schmid stated on Wednesday that persistently high inflation remains a key issue the Fed needs to address, but he did not specify how monetary policy should respond. Schmid said, "I think we still have work to do on inflation," while also noting, "I think the employment situation is quite good." He did not elaborate on how these factors affect his judgment regarding the outlook for monetary policy. Schmid had previously expressed skepticism about the Fed's push for interest rate cuts last year, when officials lowered the target rate range to 3.5%–3.75%. Markets expect the Fed to implement further rate cuts this year, but officials have provided little guidance. Schmid also discussed the Fed's balance sheet, stating that internal discussions are focused on understanding the appropriate level of reserves needed for the financial system. He pointed out that the large holdings of mortgage-backed securities from the Fed's past bond-buying programs continue to suppress housing borrowing costs. Due to the current scale of the Fed's mortgage bond holdings, mortgage rates "may be 75 to 100 basis points lower than they otherwise would be."