Fed's Schmid says high inflation still bigger issue facing central bank

By Michael S. Derby

NEW ‌YORK, Feb ​25 (Reuters) - ​Federal Reserve Bank of Kansas City President Jeffrey Schmid said on Wednesday that overly high inflation remains ‌a key problem the central bank needs to address, ⁠but he stopped short of saying how monetary policy should respond.

“I think ‌we have work to do ‌on the inflation side of things,” while “I think we're in a pretty good place for employment,” Schmid said in ​an appearance before the Economic Club of Colorado.

The bank president did not, however, say how that mix of factors ⁠is influencing his outlook for monetary policy. Schmid was a skeptic of the Fed’s ​push to lower the cost of short-term borrowing last year that saw officials lower their target rate ​range to between 3.5% to ‌3.75%.

Markets expect more Fed rate cuts this year but officials have offered little guidance, with many ⁠watching for evidence that inflation is moving down toward the Fed's 2% target.

The Fed's rate cuts last year sought to bolster a softening ⁠job market while retaining enough policy restraint to keep inflation moving down.

Schmid ​also addressed the Fed’s balance sheet and said internal debates focus on understanding the right level of reserves for the financial system.

He noted ‌that the Fed’s still-large holdings of mortgage bonds from past buying efforts were holding down home ‌borrowing costs. Mortgage rates are “probably 75 to 100 basis points lower ⁠today than they would ‌otherwise be” due to ​the current size of Fed mortgage bond holdings, he said.

(Reporting by Michael S. Derby; Editing by David ‌Gregorio)

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