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MNI BRIEF: Larger Deficits Could Mean Higher Fed Rates-Schmid

MNI (WASHINGTON) - Kansas City Fed President Jeff Schmid on Wednesday repeated that even as the supply of government debt has jumped and is expected to continue growing at a very rapid rate it will not be inflationary because the central bank will achieve its 2% inflation objective. 

"As I said in May, large fiscal deficits will not be inflationary because the Fed will do its job and achieve its inflation objective, though in doing so, the outcome could be persistently higher interest rates," Schmid said in prepared remarks. "This relationship is also at the crux of the rationale for the political independence of the central bank. Political authorities could very well prefer that deficits not lead to higher interest rates, but history has shown that following through on this impulse has often resulted in higher inflation." 

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MNI (WASHINGTON) - Kansas City Fed President Jeff Schmid on Wednesday repeated that even as the supply of government debt has jumped and is expected to continue growing at a very rapid rate it will not be inflationary because the central bank will achieve its 2% inflation objective. 

"As I said in May, large fiscal deficits will not be inflationary because the Fed will do its job and achieve its inflation objective, though in doing so, the outcome could be persistently higher interest rates," Schmid said in prepared remarks. "This relationship is also at the crux of the rationale for the political independence of the central bank. Political authorities could very well prefer that deficits not lead to higher interest rates, but history has shown that following through on this impulse has often resulted in higher inflation." 

Keep reading...Show less