Further rate hikes expected as firms try to pass on costs, says Fed’s Daly

Inflation remains the "key problem" for an otherwise healthy US economy, San Francisco Federal Reserve (Fed) President Mary C. Daly said on Friday. She added that the “bias is that rates need to go up.”

Whether monetary policy is sufficiently restrictive remains difficult to judge, according to Daly, who said that “in all likelihood we will need to raise rates,” and noted that producers say “they want to pass on costs.”

Main points:

Inflation is the main problem we face.

The economy is in good shape, with inflation its one problem.

Manufacturing is recovering, while employment gains are broad-based.

So far, evidence that AI is driving higher productivity remains limited.

With other technologies, businesses are doing more with fewer workers.

The underlying inflation rate has shifted following overlapping shocks.

The bias points towards a need for higher rates.

The Fed’s reaction function is understood by markets.

We will most likely have to raise rates.

Whether policy is sufficiently restrictive is difficult to judge.

Inflation is being driven higher by numerous factors, making it a concern.

A growing number of producers say they want to pass costs on.

Spending by consumers has proved unexpectedly resilient.

I am watching how the divide between consumer sentiment and behaviour closes.

I would not devote much time to the Summary of Economic Projections, as it captures only a single point in time.

Transparency, accountability and clarity are essential for the FOMC.

Services inflation excluding housing is under close watch, as it is heading in the wrong direction.

Despite cautious optimism among businesses, inflation remains a concern for everyone.

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

Today’s US Dollar Performance

Against the Swiss Franc, the US Dollar recorded its strongest performance today. The table below lists today’s percentage moves in the US Dollar (USD) against the major currencies shown.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.25%	0.23%	0.02%	0.05%	0.43%	0.39%	0.49%
EUR	-0.25%		-0.03%	-0.25%	-0.19%	0.17%	0.15%	0.24%
GBP	-0.23%	0.03%		-0.23%	-0.16%	0.20%	0.17%	0.27%
JPY	-0.02%	0.25%	0.23%		0.05%	0.42%	0.37%	0.48%
CAD	-0.05%	0.19%	0.16%	-0.05%		0.37%	0.33%	0.44%
AUD	-0.43%	-0.17%	-0.20%	-0.42%	-0.37%		-0.03%	0.07%
NZD	-0.39%	-0.15%	-0.17%	-0.37%	-0.33%	0.03%		0.11%
CHF	-0.49%	-0.24%	-0.27%	-0.48%	-0.44%	-0.07%	-0.11%

Percentage moves between major currencies appear in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. To read USD (base)/JPY (quote), for instance, start with the US Dollar on the left and follow that row across to the Japanese Yen. The intersecting cell gives the pair’s percentage change.

Fed: Frequently Asked Questions

The Federal Reserve’s Role and Its Influence on the US Dollar

Price stability and full employment are the Federal Reserve’s (Fed) two mandates. As the institution responsible for US monetary policy, it relies primarily on interest rate adjustments to meet those goals. If prices climb too rapidly and inflation exceeds its 2% target, the Fed increases rates. Higher borrowing costs across the economy make the US more attractive to international investors, strengthening the US Dollar (USD). By contrast, inflation below 2% or an excessively high unemployment rate may prompt the Fed to cut rates. The aim is to stimulate borrowing, with the resulting policy weighing on the US Dollar.

Eight Meetings a Year: The Fed’s Policy Schedule

Eight times a 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 Board of Governors members, the president of the Federal Reserve Bank of New York and four presidents drawn from the other eleven regional Reserve Banks. Those four positions rotate, with each president serving a one-year term.

Quantitative Easing (QE): Its Effect on USD

When conditions become extreme, the Federal Reserve may use Quantitative Easing (QE) to increase credit flows substantially through a stalled financial system. Reserved for crises or periods of exceptionally low inflation, this unconventional policy was the Fed’s preferred response during the Great Financial Crisis in 2008. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions. The policy generally weakens the US Dollar.

Quantitative Tightening (QT): Its Effect on the US Dollar

Usually supportive of the US Dollar, Quantitative tightening (QT) reverses QE. The Federal Reserve ceases bond purchases from financial institutions and, as bonds in its portfolio mature, does not reinvest the principal in new bonds.