Fed’s Collins says PCE does not change restrictive policy view
The Boston Fed President, Suan Collins, crossed the wires on Thursday as the Jackson Hole Symposium began. She said that the recent PCE report does not change the view that policy is restrictive and will lead to gradual disinflation.
Collins added that the jump in US bond yields is “still consistent with price stability,” and added that she has no comment on Bessent’s intervention.
Recently, Collins added via an interview with the Wall Street Journal that a rate hike is warranted if inflation disappoints.
Key highlights:
RECENT PERSONAL CONSUMPTION EXPENDITURES REPORT DID NOT CHANGE MODAL OUTLOOK THAT CURRENT MONETARY POLICY IS RESTRICTIVE AND WILL LEAD TO A GRADUAL DISINFLATION
PORTFOLIO MANAGEMENT FEES HAD AN OUTSIZED INFLUENCE ON HEADLINE INFLATION, WITH MARKET-BASED PRICES MORE IN LINE WITH FED'S TARGET
RECENT INFLATION DATA 'MIXED,' WITH HEADLINE FIGURE STRONGER THAN EXPECTED BUT 'PROMISING SIGNS' IN THE DETAILS
RECENT INCREASE IN BOND YIELDS STILL CONSISTENT WITH PRICE STABILITY, NOT A SIGN INFLATION EXPECTATIONS ARE INCREASING
ABSENT NEW TARIFF AND OIL SHOCKS, THERE ARE REASONS TO THINK INFLATION WILL EASE
SHE IS WATCHING BOND YIELDS, BUT HAS NO COMMENT ON BESSENT'S INTERVENTION
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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