Fed’s Schmid warns energy shock is leaking into the economy
Kansas City Fed President Jeffrey Schmid warned on Thursday that inflation remains stubborn and that the energy shock is spreading into the broader economy. With the next meeting approaching, he said the Fed needs more information but remains committed to returning inflation to 2%.
Key Quotes
Inflation is stubborn and sticky.
The Fed will have its work cut out as the next meeting looms.
It is unclear what Fed policy is restricting right now.
The Fed needs more information.
The energy shock is leaking into the economy.
The Fed needs to get inflation back to 2%.
It will take time to change the Fed’s balance sheet.
There may be room to hold fewer Fed meetings.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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FXStreet Team
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