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Fed’s Cook: AI, Iran risks could keep inflation pressures high

Federal Reserve (Fed) Governor Lisa Cook said in a speech in Oakland, California, that the number and magnitude of future adjustments to the Fed funds rate will depend on inflation and labor market data.

Cook added that she expects to see continued inflation pressures build from AI and the US-Iran conflict.

Key highlights:

Number and magnitude of any future rate adjustments will be informed by inflation and labor market data, and the economy's reaction to the Fed's actions so far

Highly attentive to AI potentially causing a temporary rise in unemployment; Fed has limited tools, rate cuts could fuel inflation

Expect to see continued inflation pressure in coming months, from artificial intelligence and conflict in the Middle East

Hope pace of AI adoption will minimize net job losses

See some economy-wide pressure from AI-fueled demand

Those gains will not come in time to offset broadening inflation this year; signs of broadening pressure in inflation data

Limited evidence to date that al is changing labor market structure

Fed would have limited tools to help in such a case. Lowering rates could fuel inflation

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 Swiss Franc.

USDEURGBPJPYCADAUDNZDCHF
USD0.14%-0.30%-0.06%0.16%-0.07%-0.36%0.24%
EUR-0.14%-0.28%-0.18%0.03%-0.19%-0.37%0.11%
GBP0.30%0.28%0.10%0.31%0.08%-0.09%0.51%
JPY0.06%0.18%-0.10%0.20%-0.04%-0.21%0.41%
CAD-0.16%-0.03%-0.31%-0.20%-0.26%-0.42%0.18%
AUD0.07%0.19%-0.08%0.04%0.26%-0.18%0.43%
NZD0.36%0.37%0.09%0.21%0.42%0.18%0.62%
CHF-0.24%-0.11%-0.51%-0.41%-0.18%-0.43%-0.62%

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

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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