Fed's Bostic: Inflation Still Key Concern for Fed

February 26: Federal Reserve official Schmiede said Wednesday that high inflation remains a key challenge the Fed must tackle, though he did not spell out how monetary policy should react. “I believe we still have work to do on inflation,” Schmiede stated, adding that “the employment situation is pretty good.” He did not detail how these factors could shape his monetary policy outlook. Notably, Schmiede had previously expressed skepticism about the Fed’s rate cuts last year, when officials lowered the target range to 3.5%-3.75%. Markets expect the Fed to cut rates further this year, but officials have offered little guidance. Schmiede also addressed the Fed’s balance sheet, noting internal discussions have focused on identifying the appropriate level of reserves the financial system needs. He pointed out that the Fed’s large holdings of mortgage-backed securities (MBS) from past bond-buying programs continue to suppress housing borrowing costs. Due to the current size of these MBS holdings, mortgage rates “may be 75 to 100 basis points lower than they would be otherwise,” he said. (Jinse)