Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee said on Thursday that they could return to a situation where interest rates could come down if tariffs are avoided by a deal or otherwise, per Reuters.
"If politics controls the interest rate, inflation is coming back," Goolsbee added and further noted that sometimes the central bank has to do what the political apparatus doesn't enjoy.
Key takeaways
"Stagflation is the toughest scenario for a central bank; that's not what we are facing now."
"This is a stagflationary direction, but it's not stagflation."
Market reaction
The US Dollar Index stays under bearish pressure following these comments and was last seen losing 0.45% on the day at 99.45.
FXStreet Speech Tracker provided a score of 5.4 to these comments, suggesting that they were relatively neutral. Meanwhile, FXStreet Fed Sentiment Index stays in hawkish territory above 110.00.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD: A minor support emerges around 0.6480
AUD/USD added to Friday’s retracement, returning to the 0.6550 zone amid the persistent move higher in the US Dollar and the resumption of trade concerns. The Australian Dollar is expected to closely follow the release of critical hard data from China on Tuesday.
EUR/USD: Downward pressure losing impulse?
EUR/USD traded in the red for the fourth day in a row, this time retreating to three-week troughs in the mid-1.1600 on the back of the firmer tone in the Greenback and renewed trade effervescence between the US and the European Union.
Gold battling around $3,350 amid fresh tariffs’ threats
Gold prices maintain their bearish tilt around the $3,350 zone per troy ounce, leaving behind three consecutive days of gains. Fresh trade concerns seem to temper the precious metal’s decline, but investors remain cautious ahead of the publication of US inflation data on Tuesday and the US Dollar's continued strong tone.
Hyperliquid Price Forecast: HYPE eyes gains following Sonnet BioTherapeutics' rebrand
Hyperliquid (HYPE) trades near $48 on Monday following Sonnet BioTherapeutics' (SONN) announcement that it has entered a merger agreement with Rorschach I LLC to launch as a new HYPE treasury company, Hyperliquid Strategies Inc.
Five fundamentals for the week: Investors eye tariff circus and US inflation data Premium
Which country will be the next to receive a letter from America? US President Donald Trump has been extending his tariff threats through the weekend. Has the US economy felt the consequences of levies already imposed? These are the topics for another hot summer month.
Best Brokers for EUR/USD Trading
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.