Powell speech: We have the ability to take our time and get this right
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.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
