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

Odaily News: Federal Reserve official Schmid stated on Wednesday that excessively high inflation remains a key issue the Fed needs to address, but he did not specify how monetary policy should respond. Schmid said, "I believe we still have work to do on inflation," while also noting, "I think the employment situation is quite good." He did not explain how these factors affect his judgment on the outlook for monetary policy. Schmid had previously expressed skepticism about the Fed's push to lower interest rates last year, when officials reduced the target interest rate range to 3.5% to 3.75%. The market expects the Fed to further cut rates this year, but officials have provided almost no 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 actions are still suppressing housing borrowing costs. Due to the current scale of the Fed's holdings of mortgage bonds, mortgage rates "may be 75 to 100 basis points lower than they otherwise would be."