Federal Reserve's Schmidt: Inflation Remains a Key Issue for the Fed

Mars Finance News: On Wednesday, Federal Reserve’s Smith said that high inflation remains a key issue the Fed needs to address, but he did not specify how monetary policy should respond. Smith stated, “I believe we still have work to do on inflation,” and also said, “I think the employment situation is quite good.” He did not clarify how these factors influence his outlook on monetary policy. Smith was previously skeptical about the Fed’s rate cuts last year, when officials lowered the target range to 3.5% to 3.75%. The market expects the Fed to cut rates further this year, but officials have provided little guidance. Smith also discussed the Fed’s balance sheet, saying internal discussions focus on understanding the appropriate level of reserves needed for the financial system. He pointed out that the large amount of mortgage-backed securities held from past bond purchases is still suppressing housing borrowing costs. Due to the current size of the Fed’s holdings of mortgage bonds, mortgage rates are “possibly 75 to 100 basis points lower than they would otherwise be.” (Jin10)