Fed’s Barr calls economy “strikingly” resilient, defends last hike
Federal Reserve (Fed) Governor Michael Barr said Tuesday that he sees “elevated wage rates in the skilled trades,” and added that the resilience of the US economy is “striking.”
He said that the Fed is data-dependent and focused on the balance of risks to achieve the dual mandate, and that the last hike was “appropriate.”
Key highlights:
Seeing some elevated wage rates in the skilled trades
Taking the longer view, we need to be sure we do what it takes to bring supply and demand into balance
The resilience of the US economy is striking
Momentum seems to be building in the economy
All we're focused on is what the data tell us about the evolving outlook and balance of risks to achieving our congressional mandate
I see us not getting to the 2% inflation target in a timely way unless we adjust our policy
Last hike was appropriate, and I think we will likely need further adjustments.
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.
