Fed's Schmid: Not in a hurry to cut interest rates
Federal Reserve Bank of Kansas City President Jeff Schmid said on Thursday that the last mile of inflation will be "pretty hard," per Reuters.
Key takeaways
"Perhaps mortgage applications could be simplified."
"Labor market is solid."
"Some cooling in first couple quarters but there is optimism now."
"Supply and demand for workers seems in balance despite immigration impacts."
"Inflation number likely closer to 3 than 2, there is work to do."
"A lot of data still until September."
"Markets and spreads are in good shape; need definitive data to move the policy rate."
"Not in a hurry to cut interest rates."
"Searching for data that shows Fed policy is restrictive."
"Have to be careful about what lowering short term rates would do to inflation mentality."
Market reaction
These comments received a hawkish score of 6.4 from FXStreet Fed Speech Tracker, lifting the FXStreet Fed Sentiment Index to 106.32.
Meanwhile, the US Dollar (USD) Index was last seen trading marginally higher on the day at 98.27.
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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