Fed's Schmid: Inflation is still too high, Fed has more work to do

Kansas City Federal Reserve Bank President Jeffrey Schmid spoke at the regional bank's agricultural summit on Tuesday. Schmid said that inflation remains too high and the US central bank has more work to do.

Key quotes

“Policy is in the correct place.”

“Continued vigilance, flexibility are necessary.”

“Prepared to be patient as inflation eases back toward 2%.”

“Inflation expectations remain relatively low and anchored.”

“Inflation is still too high, Fed has more work to do.”

“Interest rates could remain high for some time.”

“Labor market has come off a historic boil by many measures.”

“There are signs that imbalances driving inflation are easing.”

“Fed must preempt inflation from becoming ingrained.”

“Fed's job on inflation is made easier by supply increases.”

“My preference is to shrink Fed's balance sheet as much as possible, consistent with the operating framework.”

"I don't think we should have slowed the balance sheet runoff."

"Whatever we don't run off on the balance sheet we should reinvest in short-term treasury debt."

"We need room on the Fed's balance sheet, which is a monetary tool."

"Productivity growth can moderate inflation, in the long run can help get to 2% inflation."

Market reaction

The US Dollar Index (DXY) is trading 0.04% higher on the day at 105.04, as of writing.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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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