Fed’s Barkin backs gradual rate hikes as inflation stays too high
On Thursday, Richmond Federal Reserve (Fed) President Thomas Barkin said inflation is the most important risk for the Fed right now, adding that the policy path is straightforward and that a gradual pace of rate increases “makes sense.”
Barkin said that “inflation is too high,” and although he doesn’t hear it escalating, he also doesn’t hear it cooling. Regarding the labor market, he added that companies are still cautious about hiring, “but are not yet firing.”
Key highlights:
Demand in the economy is solid, though some sectors don’t feel it
Businesses are still cautious about hiring but are not yet firing
There is cost pressure on businesses
Earnings remain strong, and that is encouraging firms to invest and hold onto workers
The set of cost pressures of the past 18 months, starting with tariffs, are broad based and firms feel they have to pass them along
Do not anticipate inflation will accelerate, but also don’t see it falling at this point
The path on policy is straightforward; the issue now is pace and gradual “Makes sense”
Policy right now is somewhere around neutral
AI is a big part of current strong demand
Interest rates are probably not the top thing that would curb AI, but they will have some impact
Inflation is the most important risk for the Fed right now
The budget deficit is “sizeable,” fiscal policy over the past few years has been a tailwind for the economy
Do not have a point of view about what will happen to fiscal policy following the election
Do not think AI is what is currently driving productivity as much as adaptation to the labor shortages that began during the pandemic
AI buildout has definitely had an inflationary impact in the near term
Data centers, because of lack of employees, do not have natural constituencies in the communities where they are located
Change in number of policy setting meetings is not a big deal
Changing the pace of policy meetings does has the advantage of a better flow of data for each session
On communications the Fed needs to land at a place where both the Chairman and the committee are comfortable
Credit dynamics in the banking sector are “Reassuring” at this point
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.07% | -0.00% | -0.32% | 0.19% | 0.65% | 0.21% | -0.26% | |
| EUR | -0.07% | -0.07% | -0.41% | 0.12% | 0.58% | 0.14% | -0.34% | |
| GBP | 0.00% | 0.07% | -0.32% | 0.19% | 0.66% | 0.22% | -0.27% | |
| JPY | 0.32% | 0.41% | 0.32% | 0.52% | 0.99% | 0.52% | 0.05% | |
| CAD | -0.19% | -0.12% | -0.19% | -0.52% | 0.47% | 0.00% | -0.46% | |
| AUD | -0.65% | -0.58% | -0.66% | -0.99% | -0.47% | -0.43% | -0.93% | |
| NZD | -0.21% | -0.14% | -0.22% | -0.52% | -0.01% | 0.43% | -0.45% | |
| CHF | 0.26% | 0.34% | 0.27% | -0.05% | 0.46% | 0.93% | 0.45% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
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.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
