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Fed’s Schmid warns of inflation beyond energy amid accommodative policy
Inflation remains a central concern for Kansas City Federal Reserve (Fed) President Jeffrey Schmid, who said “inflation is top of mind,” and described current monetary policy as “fairly accommodative,” in hawkish remarks on Tuesday. He was speaking at a conference in Houston, TX, hosted by the Dallas Fed and the Kansas City Fed.
Beyond energy, Schmid pointed to “some concerning trends in prices, underneath the whole energy story.” Describing the labour market as solid, he stressed that “hiring is pretty robust lately.”
Schmid flags inflation concerns and robust demand:
Beyond the energy picture, some price trends are concerning
Recent US hiring has been fairly robust.
The Fed's benchmark rate is currently fairly accommodative
Housing could be said to be experiencing an ‘interesting dynamic’, but no restriction is evident elsewhere
Rates are not prompting hesitation, with demand remaining strong
Inflation remains the foremost concern
Digital asset structures will be leapfrogged by instant payments
Many interesting data points lie ahead before the Fed's December meeting
US Dollar Outperforms Australian Dollar Today
Against the major currencies listed below, the US Dollar (USD) recorded its strongest performance today versus the Australian Dollar. The table sets out today's percentage changes for the US Dollar against each currency.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.53% | 0.73% | 0.57% | 0.48% | 0.89% | 0.54% | 0.73% | |
| EUR | -0.53% | 0.20% | 0.05% | -0.04% | 0.36% | 0.02% | 0.21% | |
| GBP | -0.73% | -0.20% | -0.17% | -0.23% | 0.16% | -0.19% | 0.00% | |
| JPY | -0.57% | -0.05% | 0.17% | -0.08% | 0.32% | -0.03% | 0.16% | |
| CAD | -0.48% | 0.04% | 0.23% | 0.08% | 0.40% | 0.05% | 0.24% | |
| AUD | -0.89% | -0.36% | -0.16% | -0.32% | -0.40% | -0.35% | -0.16% | |
| NZD | -0.54% | -0.02% | 0.19% | 0.03% | -0.05% | 0.35% | 0.18% | |
| CHF | -0.73% | -0.21% | -0.00% | -0.16% | -0.24% | 0.16% | -0.18% |
Percentage movements between the major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. Selecting the US Dollar on the left and following its row across to the Japanese Yen, for instance, gives the percentage change for USD (base)/JPY (quote).
The Fed Explained
Price stability and full employment are the two mandates of the Federal Reserve (Fed), which sets US monetary policy. Adjustments to interest rates are its main means of meeting these objectives. If prices climb too rapidly and inflation exceeds the Fed’s 2% target, the central bank increases interest rates. Borrowing then becomes more expensive across the economy, while the greater appeal of US investments to international investors strengthens the US Dollar (USD). Conversely, inflation below 2% or an excessively high unemployment rate may prompt the Fed to cut interest rates. Such cuts aim to stimulate borrowing and put pressure on the Greenback.
Eight times each year, the Federal Reserve (Fed) convenes policy meetings at which the Federal Open Market Committee (FOMC) reviews the economy and decides monetary policy. Twelve Fed officials attend the FOMC: all seven members of the Board of Governors, the president of the Federal Reserve Bank of New York and four of the other eleven regional Reserve Bank presidents. Those four regional presidents rotate through one-year terms.
To substantially expand credit flows when the financial system is stalled, the Federal Reserve may adopt Quantitative Easing (QE) in extreme circumstances. This unconventional policy is deployed during crises or periods of exceptionally low inflation. During the Great Financial Crisis in 2008, it was the Fed’s preferred tool. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions, a process that typically weakens the US Dollar.
By reversing QE, quantitative tightening (QT) typically supports the value of the US Dollar. Under QT, the Federal Reserve ceases bond purchases from financial institutions and, as bonds in its portfolio mature, does not reinvest the principal in new bonds.
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