During a discussion panel hosted by the Federal Reserve (Fed) Bank of Atlanta, the San Francisco and Cleveland Fed Bank Presidents Mary C. Daly and Beth Hammack both took the opportunity to express concern about the current state of the US economy. While economic data remains firm, US trade policy has made many consumers and businesses increasingly sour. Atlanta Fed President Raphael Bostic also participated in the event, adding to his previous comments made on Tuesday.
Roughshod, on-again-off-again tariffs from the Trump administration threaten to overwhelm US trade logistics, which rely heavily on large-scale importing to meet domestic demand. As noted by several Fed policymakers in recent weeks, a cloudy trade outlook has made it difficult for businesses to invest in their operations and either hire or fire employees, freezing up typical business operations associated with a healthy economy.
Mary C. Daly highlights
Federal Reserve policy is in a good place.
highly sensitive to risk of inflation.
Net impact of Trump administration trade, immigration, other policies unknown.
Beth Hammack highlights
Sentiment data about the economy concerning.
Firms reluctant to release employees.
Will take longer to observe how business decisions are impacted by trade policy.
Currently the optimal move for the Federal Reserve is to refrain from taking action.
Federal Reserve well positioned to be patient.
Inflation outlook stays stable, potential shift could signal action from the Fed.
Inflation expectations remain well anchored
Raphael Bostic highlights
No recession expected, but uncertain when households and firms will feel comfortable making long-term spending decisions.
High profile inquiries, like trade policy, clarity appears to be moving further ahead
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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