CPI points to persistent US inflation pressures, Fed’s Bowman warns

Inflation remains a policy concern for Federal Reserve (Fed) Governor Michelle Bowman, who said “bringing inflation down remains a priority,” adding that “CPI data suggests inflation pressures may persist.”

Speaking at the Council on Foreign Relations, Bowman described longer-term inflation expectations as “very well anchored.” She also noted that economic growth had gathered pace and the labour market had improved without contributing to inflation.

What are the key points?

With inflation proving persistent and labour conditions strengthening, further work appears necessary.

With financial conditions now tighter, the Fed needs to assess the costs of further policy tightening.

Reducing inflation continues to be a priority.

Energy prices and AI-related demand likely pushed core PCE up 3.3% in October.

Core PCE is forecast to approach 2% next year as shocks fade.

This year has seen economic growth gather pace.

Inflationary pressures may endure, judging by the CPI data.

Attention remains on risks to financial stability should AI returns disappoint.

Despite improving, the labour market is not tight and is not contributing to inflation.

External financing is playing a growing role in funding AI development.

Expectations for inflation over the longer term remain firmly anchored.

While inflation expectations are an important data point, they do not necessarily determine my thinking.

Before I could be confident that inflation will decline next year, I would need to see risks related to AI and the Middle East ease.

Data on counterparties to AI-related debt are being sought by the Fed.

Maintaining open communication channels with the Treasury is critically important.

I do not believe AI will deprive the US economy of jobs.

Alongside raising worker productivity, AI will generate new jobs and remove roles that are less necessary.

Through its continuing cybersecurity examinations of banks, the Fed has observed considerable attention to detecting and patching vulnerabilities.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

How Is the US Dollar Performing Today?

The US Dollar recorded its strongest performance against the Australian Dollar today. Below, the table sets out the percentage changes in the US Dollar (USD) against the major currencies listed.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.51%	0.73%	0.52%	0.48%	0.87%	0.51%	0.72%
EUR	-0.51%		0.21%	0.02%	-0.03%	0.35%	0.01%	0.21%
GBP	-0.73%	-0.21%		-0.23%	-0.25%	0.14%	-0.21%	0.00%
JPY	-0.52%	-0.02%	0.23%		-0.03%	0.35%	0.00%	0.20%
CAD	-0.48%	0.03%	0.25%	0.03%		0.39%	0.03%	0.24%
AUD	-0.87%	-0.35%	-0.14%	-0.35%	-0.39%		-0.35%	-0.14%
NZD	-0.51%	-0.01%	0.21%	-0.00%	-0.03%	0.35%		0.20%
CHF	-0.72%	-0.21%	-0.00%	-0.20%	-0.24%	0.14%	-0.20%

Percentage movements between the major currencies are displayed in the heat map. To read it, select the base currency in the left-hand column and the quote currency in the top row. For instance, choosing the US Dollar on the left and following that row across to the Japanese Yen gives the percentage change for USD (base)/JPY (quote) in the corresponding cell.

Fed Questions Answered

How does the Federal Reserve’s role affect the US Dollar?

The Federal Reserve (Fed) sets US monetary policy with a dual mandate: maintaining price stability and promoting full employment. Adjustments to interest rates are its main means of pursuing these objectives. If prices climb too rapidly and inflation exceeds its 2% target, the Fed increases interest rates. Borrowing then becomes more expensive across the economy. Higher rates make the US a more appealing destination for international investors’ funds, strengthening the US Dollar (USD). Conversely, with inflation below 2% or the Unemployment Rate too high, the Fed may cut interest rates to stimulate borrowing, putting pressure on the Greenback.

What is the schedule for the Fed’s monetary policy meetings?

At eight policy meetings each year, the Federal Open Market Committee (FOMC) reviews economic conditions and takes monetary policy decisions for the Federal Reserve (Fed). Twelve Fed officials participate in the FOMC: all seven Board of Governors members, the president of the Federal Reserve Bank of New York, and four presidents from the other eleven regional Reserve Banks. The latter serve rotating one-year terms.

How does Quantitative Easing (QE) work, and what does it mean for USD?

When circumstances are extreme, the Federal Reserve may turn to Quantitative Easing (QE) to substantially expand credit flows through a stalled financial system. This unconventional policy is used in crises or periods of exceptionally low inflation. During the Great Financial Crisis in 2008, it was the Fed’s preferred response. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions. The US Dollar typically weakens as a result.

How does Quantitative Tightening (QT) work, and what does it mean for the US Dollar?

By reversing QE, Quantitative tightening (QT) generally supports the US Dollar’s value. Under this process, the Federal Reserve ceases bond purchases from financial institutions and, as its existing bonds mature, does not reinvest the principal in new bonds.