Federal Reserve Governor Stephen Meiran told Fox Business on Tuesday that he expects the data to support further interest rate cuts, and also said the Fed should cut more than 100 basis points this year.
Key takeaways
“Core inflation is close to the Fed’s target.”
“Fed policy is restrictive and holding the economy back.”
“I haven’t talked to Trump about becoming Fed chairman.”
“All of the names on the Fed chair shortlist are credible.”
“Fiscal policy will support growth this year.”
“Optimistic about economic growth.”
“If monetary policy remains too tight, it could nip growth in the bud.”
Market reaction
These comments received a downbeat score of 3.0 from FXStreet Fed Speechtracker. In contrast, the US Dollar Index is retreating from its session highs and was last seen trading almost unchanged on the day at 98.37.
Federal Reserve Bank Questions and Answers
Monetary policy in the United States is shaped by the Federal Reserve Bank (Fed). The Federal Reserve has two missions: achieving price stability and promoting full employment. The primary tool for achieving these goals is adjusting interest rates. When prices rise too quickly and inflation is above the Fed’s 2% target, it raises interest rates, which increases borrowing costs throughout the economy. This causes the US dollar (USD) to strengthen because it makes the United States a more attractive place for international investors to park their money. When inflation falls below 2% or when the unemployment rate is very high, the Fed may lower interest rates to encourage borrowing, which affects the dollar.
The Federal Reserve (Fed) holds eight policy meetings annually, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC meeting is attended by twelve Fed officials – the seven members of the Board of Governors, the New York Fed president, and four of the remaining eleven regional Fed presidents, who serve one-year terms on a rotating basis.
In extreme cases, the Fed may resort to a policy called quantitative easing (QE). Quantitative easing is the process by which the Federal Reserve dramatically increases the flow of credit into a stuck financial system. It is a non-standard policy measure used during crises or when inflation is very low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. Quantitative easing usually weakens the US dollar.
Quantitative tightening (QT) is the reverse process of quantitative easing, where the Fed stops purchasing bonds from financial institutions and does not reinvest capital from bonds it holds outstanding, to purchase new bonds. This is usually positive for the value of the US dollar.
