Federal Reserve Exploring Short-Term Securities Response to Inflation

Federal Reserve official Schmid suggests that further interest rate cuts could have a significant impact on inflation. The Fed may also adjust its balance sheet investments, shifting towards short-term securities. This approach would allow the Fed to shrink their balance sheet size and alleviate liquidity pressures by reducing reserve interest rates and potentially easing the use of standing repo facilities. Notably, analysts believe that demand for reserves will likely remain stable rather than increasing proportionally with nominal GDP growth.