In an interview with Bloomberg on Friday, Federal Reserve (Fed) Governor Christopher Waller said that the private sector is not doing as well as it seems, per Reuters.
Key takeaways
“Business executives say they are not hiring or firing.”
“Will not commit to a dissent on interest rate vote ahead of the July meeting.”
“Disagreement over monetary policy shows healthy debate at the Fed.”
“The debate is not about politics but about making an economic argument.”
“Important that dissents are made carefully.”
“It is probably not critical if the Fed waits six more weeks to cut, but also no real reason to hold off.”
“Tariffs are a tax, and like any tax will be shared by different groups.”
“Some of the cost of tariffs will be passed along to consumers, but not in a way that causes persistent inflation.”
“If there is a sequence of higher and higher tariffs there could be a rolling impact on prices.”
“Market based inflation expectations are still anchored despite the president’s comments about the Fed.”
“The next chair will have to have credibility with markets or interest rates will rise.”
“If the president asks me to serve as chair would accept, so far the president has not been in touch.”
Market reaction
Waller’s comments received a neutral score of 5.2 from FXStreet Fed Speech Tracker. Meanwhile, FXStreet Fed Sentiment Index remains in hawkish territory above 110.
The US Dollar Index largely ignored these comments and was last seen losing 0.38% on the day at 98.25.
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.
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