Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee said on Tuesday that there is low-hiring and low lay-off in the labor market, per Reuters.
Key takeaways
“We did not move the inflation target.”
“Have to get inflation to 2%, period.”
“Anyone saying we’re raising the inflation target, that’s dangerous talk.”
“I think we are mildly restrictive.”
“Neutral is below where we are now by 100-125 basis points.”
“We need to be a bit careful about getting aggressive.”
“I think rates can come down some if we’re on a path to getting inflation back to target.”
“Ultimately, Fed rate may settle at around 3% with inflation back to 2%, and I’m ok with that.”
“Critically important that we maintain monetary independence.”
“Labor market continues to cool at a mild, modest pace.”
“Supply side of labor is moving all around with immigration.”
Market reaction
These comments received a hawkish score of 6.2 from FXStreet Fed Speech Tracker. Nevertheless, FXStreet Fed Sentiment Index remains in the dovish territory below 100 after Goolsbee’s remarks.
Meanwhile, the US Dollar Index clings to modest daily gains, slightly above 97.30.
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.