Atlanta Federal Reserve (Fed) President Raphael Bostic told Reuters on Tuesday that the Fed does not need to cut the policy rate now, noting that inflation risks remain as businesses run out of ways to postpone tariff driven price hikes.
Key takeaways
"Expecting a single quarter of a percentage point reduction late this year."
"Business officials have become less pessimistic, feel they can manage through tariffs, but say price increases are just a matter of time."
"Labor market remains solid, consumption is still resilient."
"Expecting economic growth slowing to 1.1% this year, inflation rising to 2.9%."
Market reaction
The US Dollar (USD) edged slightly higher with the immediate reaction to these comments and was last seen losing 0.33% on the day at 98.03.
Bostic's remarks received a neutral/hawkish score of 6.0 from FXStreet Fed Speech Tracker. Meanwhile, FXStreet Fed Sentiment Index rose to 105.8 from 105.2.
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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