Federal Reserve (Fed) Chairman Jerome Powell and European Central Bank (ECB) President Christine Lagarde discuss monetary policy outlook at the ECB Forum on Central Banking in Sintra.
Key quotes from Powell
"The labor market is still strong."
"The disinflation trend shows signs of resuming."
"Made quite a bit of progress on inflation."
"We are getting back on disinflationary path."
"We need to be more confident before reducing policy rates."
"We need to see more data like we've been seeing recently."
"Data represents significant progress."
"If the labor market unexpectedly weakens, that would also cause us to react."
"We have the ability to take our time and get this right."
"Well aware of risk of going too soon and too late."
"Risks becoming much more balanced."
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD retreats from tops and retests 1.0730 on US data
EUR/USD now faces some downside pressure on the back of some recovery in the US Dollar after the JOLTs Job Openings report came in stronger than expected in May.
GBP/USD keeps the bullish bias near 1.2680
The Dollar's vacillating price action allows GBP/USD to extend its daily bounce and approach the key 1.2700 neighbourhood, as investors assess the ECB forum and US data releases.
Gold under mild selling pressure around $2,320
The precious metal now fades the initial uptick and trades with modest losses near the $2,320 zone per ounce troy in response to the data-driven bounce in the Greenback.
Crypto Today: Bitcoin gets less interest from traders, Ethereum ETF could attract $5 billion inflows
Bitcoin market sees a decline in volatility per on-chain data from Crypto Quant. Bitcoin ETFs saw a net inflow of $129 million on July 1; on-chain analysts predict a relief rally in BTC.
Eurozone inflation ticks down in June
The eurozone’s inflation rate has come down from 2.6% to 2.5%, while core inflation remained at 2.9%. Nothing in these figures would make the ECB cut again in July.