|

Fed's Williams says wants to avoid inflation becoming highly persistent

Federal Reserve Bank of New York President John Williams said on Wednesday that he wants to avoid inflation becoming highly persistent because that could become permanent.

Key quotes

Important that inflation expectations are well anchored.
Want to avoid inflation becoming highly persistent because that could become permanent.
Way to avoid that is to respond relatively strongly when inflation begins to deviate from the target.
Misperceptions about ‘r star’ can lead to long-lasting deviations.
We have to be very aware that inflation expectations could shift in any way that could be detrimental.
You want the whole curve of inflation expectations to be well-behaved.
It’s not to say inflation expectations shouldn’t move, it means they should move in a way that emerges back to target within several years.

Market reaction 

The US Dollar Index (DXY) is trading 0.10% lower on the day at 99.50, as of writing.

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

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

More from Lallalit Srijandorn
Share:

Editor's Picks

AUD/USD sits near monthly top, above 0.7000 as renewed USD buying caps gains

AUD/USD holds a positive bias for the fourth straight day, trading above 0.7000 in the Asian session on Wednesday and near the monthly high set the previous day after RBA Deputy Governor Andrew Hauser's hawkish remarks. Meanwhile, the US Dollar attracts some buyers as energy-driven inflation fears keep bets for at least one Fed rate hike in 2026 firmly on the table. Moreover, geopolitical uncertainty is acting as a tailwind for the safe-haven buck and caps gains for the Aussie.

USD/JPY eyes 158.50 amid modest USD strength; remains confined in a familiar range

USD/JPY attracts some dip-buyers during the Asian session on Wednesday, though it remains confined within a multi-week range as the uncertainty over the timing of the next BoJ rate hike keep Japanese Yen bulls on the defensive. Meanwhile, hawkish Fed expectations, bolstered by inflation risks stemming from volatile oil prices, underpin the US Dollar. However, looming intervention fears could limit JPY losses and cap the currency pair.

Gold struggles near weekly low, just above $4,100 amid USD uptick

Gold remains depressed for the fourth straight day, flirting with the weekly low during Wednesday’s Asian session, with bears awaiting a sustained break below $4,100 before placing fresh bets. Energy-driven inflation fears keep Fed hike bets firmly on the table, reviving US Dollar demand and undermining the non-yielding bullion. However, an unconfirmed report of US-Iran diplomacy could cap the safe-haven buck, which could offer some support to the precious metal.

Ethereum bounces off $2,400 for a sixth day despite ETF outflows
Ethereum (ETH) bounced again near the $2,400 level on Tuesday, the sixth straight day, as its on-chain cost basis and key moving averages have stood as key support levels. The sub-$2,400 level has proven to be a strong support for the top altcoin over the past week amid macro pressures. Buyers have repeatedly stepped in to defend prices whenever it falls below the level.
NFLX, META and TSLA deliver earnings this week. The market's mood rides on three reports

Netflix, Meta Platforms and Tesla all report earnings this week, and the market’s mood rides on three reports that could easily reset the tone for the entire market heading into the holiday season. Investors are heading into this stretch with a mix of anticipation and unease because each company represents a different pillar of market sentiment. All three have much to prove.

The US Dollar fell. Gold didn't rally. That tells you everything
Gold (XAU/USD) is struggling to capitalize on a weaker US Dollar (USD), after repeatedly failing to establish itself above the $4,200 level. The precious metal remains confined to a relatively narrow trading range despite a combination of developments that would normally support higher prices.