BlockBeats News, February 26: Federal Reserve’s Schmiede said on Wednesday that high inflation remains a key challenge that the Fed needs to address, but he did not specify how monetary policy should respond. Schmiede said: “I believe we still have work to do on inflation,” while also stating “I think the employment situation is pretty good.” He did not elaborate on how these factors might influence his outlook on monetary policy. Schmiede had previously been skeptical of 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 further cut rates this year, but officials have provided little guidance. Schmiede also discussed the Fed’s balance sheet, saying that internal discussions have focused on understanding the appropriate level of reserves needed for the financial system. He noted that the Fed’s large holdings of mortgage-backed securities from past bond-buying actions are still suppressing housing borrowing costs. Due to the current size of the Fed’s holdings of mortgage-backed bonds, mortgage rates “may be 75 to 100 basis points lower than they would be otherwise.” (Jinse)
