Powell speech: Readings like today's CPI is a step in the right direction
Federal Reserve Chairman Jerome Powell explains the decision to leave the policy rate, federal funds rate, unchanged at the range of 5.25%-5.5% and responds to questions in the post-meeting press conference.
Key quotes
"Readings like today's CPI is a step in the right direction."
"But one reading is just one reading, don't want to be too motivated by that."
"We are doing everything we can to bring inflation back down under control."
"We in the phase of sticking with it until we get it done."
"We are encouraged that we are still seeing solid economic growth."
"Today's inflation report is also encouraging, but comes after several that were not so encouraging."
"It may take several years for the bulge in rent prices to work it's way through to lower housing inflation."
"Household sector is still in pretty good shape, just not as good as a year ago."
"We do see increasing financial pressures on more lower income people."
"Best thing we can do is foster a strong jobs economy."
"If we see unemployment more than we forecast, we would view that as unexpected weakening."
"Of course we can't wait for that to happen, and that's why we always look at balance of risks."
"A decision to loosen policy could have several reasons associated with it."
"If we saw troubling weakening in labor market, that is something we would consider responding to."
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.
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