Federal Reserve Bank of Chicago President Austan Goolsbee said on Friday that the longer-run trend of labor market and inflation data justify the Fed easing interest-rate policy soon and then steadily over the next year, per MarketWatch.
Key quotes
The long arc shows inflation is coming down very significantly, and the unemployment rate is rising faster.
Given the more favorable inflation data and the less favorable unemployment data, it is pretty clear that the path is not just rate cuts soon.
Said he saw "more" warning signs about the cooling labor market.
I don't want us to be basing decisions on one data point.
If we remain tight for too long, we are going to have to deal with the employment side of the mandate.
Persistent weakness has raised the possibility that the labor market will keep cooling, and could "turn into something worse.
Market reaction
The US Dollar Index (DXY) is trading 0.02% lower on the day at 101.04, 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.
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