Fed’s Williams says worst inflation shocks have passed

Source Fxstreet

New York Fed President John Williams spoke at the University of Buffalo and said that “price stability is foundational for the economy,” adding that “determining how restrictive monetary policy is, is hard.”

Williams added that inflation should temper because the “biggest shocks” have passed and added that the “September rate hike aimed at creating a swifter return to 2% inflation.”

Key highlights:

Price stability is foundational for economy

Inflation should ease because biggest shocks have largely played out

Energy prices remain very important in economy, but us is less exposed relative to past

Depending on war's path, doesn't expect further surge in energy prices

Determining how restrictive monetary policy is is hard

September rate hike aimed at creating swifter return to 2% inflation

I'm a big believer in being data dependent

K-shaped economy is very real

AI is driving up asset market valuations, bolstering wealth effect

Starting to see some data that shows AI bolstering productivity gains

Fed should stay out of partisan politics and focus on data

Strong period of productivity could lift natural rate of interest

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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