Fed’s Schmid flags broader inflation pressures beyond energy as policy remains loose

Striking a hawkish tone, Kansas City Federal Reserve (Fed) President Jeffrey Schmid described current monetary policy as “fairly accommodative” and said that “inflation is top of mind,” during a conference in Houston, TX, on Tuesday. The event was hosted by the Dallas Fed and the Kansas City Fed.

Pointing to “some concerning trends in prices, underneath the whole energy story,” Schmid also stressed the strength of the labour market, noting that “hiring is pretty robust lately.”

What were the key takeaways?

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

Beyond energy, some underlying price trends are concerning

Hiring in the US has been fairly robust recently.

The Fed's benchmark rate remains fairly accommodative at present

Housing could be said to be experiencing an 'interesting dynamic', but there is no evidence of restriction 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

Where Does the US Dollar Stand Today?

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

	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%

To read the heat map of percentage movements between major currencies, 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: Frequently Asked Questions

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

The Federal Reserve (Fed) sets US monetary policy with a dual mandate of maintaining price stability and promoting full employment. Changes 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, pushing up borrowing costs across the economy. The US consequently becomes a more attractive destination for international investors' funds, strengthening the US Dollar (USD). Conversely, inflation below 2% or an excessively high unemployment rate may prompt the Fed to 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 decides monetary policy for the Federal Reserve (Fed). Twelve Fed officials participate: 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 serve rotating one-year terms.

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

To substantially expand credit flows when the financial system is stalled, the Federal Reserve may turn to Quantitative Easing (QE) in extreme circumstances. This unconventional policy is deployed during crises or periods of exceptionally low inflation. The Fed favoured it during the Great Financial Crisis in 2008. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions, a process that generally weakens the US Dollar.

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

By reversing QE, quantitative tightening (QT) typically supports the US Dollar's value. In this process, the Federal Reserve halts bond purchases from financial institutions and refrains from reinvesting the principal repaid as its existing bonds mature in new bonds.