Federal Reserve's Schmid: It is still uncertain how much further interest rates can decline, and large fiscal deficits may imply higher rates

ChainCatcher news, according to Jinshi reports, "The decision to cut interest rates is an acknowledgment of the growing confidence that the inflation rate is likely to reach the Federal Reserve's 2% target—this confidence is partly based on signs that the labor market and product market have been tending toward balance in recent months," said Kansas City Fed President George in remarks prepared for a speech to the Omaha Chamber of Commerce.

He stated that while the progress toward returning to the 2% target means that now is an appropriate time to cut rates, "how much further rates will decline or what they will ultimately settle at remains to be seen." On the current issue of federal government spending, George indicated that because the Federal Reserve will fulfill its responsibility to keep inflation at the established 2% target, large fiscal deficits will not trigger inflation.

However, this may mean that "interest rates will remain elevated for an extended period," George said, which is why the Federal Reserve must maintain its independence when formulating monetary policy.