Fed's Bowman: Worried Fed is behind curve on labor market weakness
Federal Reserve (Fed) Governor Michelle Bowman said on Tuesday that she supported the quarter-point interest rate cut and added that now it's important for the Fed to proactively support the job market, per Reuters.
Key takeaways
"Worried the Fed is behind the curve on labor market weakness, policy may need to adjust faster if risks materialize."
"Important that recent statement included a forward-looking view for further cuts."
"Expect last week's cut a first step towards a more neutral rate if economy evolves as expected."
"If demand conditions do not improve, businesses may begin laying off workers."
"Tariff impact on inflation will fade, inflation is otherwise near target."
"Labor market could deteriorate fast in coming months."
"Concerned housing weakness could lead to accelerating drop in values."
"Will need faster cuts if job market continues worsening."
Market reaction
FXStreet Fed Sentiment Index remains in dovish territory, slightly above 90 after these comments received a dovish score of 3.4 from FXStreet Fed Speech Tracker.
In the meantime, the US Dollar Index remains in a tight daily range at around 97.30.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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