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Fed's Musalem signals more tightening as inflation stays elevated

St. Louis Federal Reserve (Fed) President Alberto Musalem said on Thursday that inflation is elevated and that to bring it back to the 2% goal, “more monetary policy firming will be required.”

At an event organized by the Minneapolis Fed, Musalem added that he goes to “all meetings with an open mind” and that contacts within the St. Louis Fed's jurisdiction are worried about inflation rather than jobs. He reiterated that the economy is pretty strong, so the Fed can focus on lowering the cost of living.

Key highlights:

Inflation is elevated and being driven by persistent demand pressures and supply shocks.

Key to bring inflation back to 2% in timely manner and limit second-round effects.

To bring inflation back to target, more monetary policy firming will be required

I go into all meetings with an open mind.

Rates ought to be going up in the next 6 to 9 months

Contacts mostly worried about inflation and does not see job market worries

The economy is pretty strong right now, best thing Fed can do is lower inflation

Job market is overall balanced and stable; there is no need to cool the job market to get inflation down

There is a risk consumer vigor could wane

Nominal yields rising because real yields rising in part due to rate expectations.

Market inflation expectations remain anchored, doesn't see Fed credibility questioned

Real yields up mainly due to policy-rate expectations

AI investment and government deficits are also pressuring yields higher

Hear from investors some fiscal sustainability concerns

Strong demand for capital likely to keep rates higher than they used to be

Demand for capital running 3% to 4% of GDP now

Higher demand for capital is seen continuing 5-10 yrs

The US government has been on an unsustainable fiscal path for years

It's possible government debt levels may eventually create risks

Monetary policy independence is a valuable asset

Important to keep government debt management and monetary policy seperate.

Financial conditions have tightened modestly and orderly.

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.

USDEURGBPJPYCADAUDNZDCHF
USD-0.11%-0.10%-0.24%-0.21%0.13%-0.09%-0.24%
EUR0.11%0.02%-0.11%-0.11%0.17%0.03%-0.13%
GBP0.10%-0.02%-0.13%-0.12%0.16%0.02%-0.13%
JPY0.24%0.11%0.13%0.00%0.29%0.10%-0.00%
CAD0.21%0.11%0.12%0.00%0.29%0.12%0.00%
AUD-0.13%-0.17%-0.16%-0.29%-0.29%-0.14%-0.29%
NZD0.09%-0.03%-0.02%-0.10%-0.12%0.14%-0.10%
CHF0.24%0.13%0.13%0.00%-0.00%0.29%0.10%

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).

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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