Inflation extends beyond energy as policy remains loose, Fed’s Schmid warns

“inflation is top of mind,” Kansas City Federal Reserve (Fed) President Jeffrey Schmid said. Describing current monetary policy as “fairly accommodative,” he delivered hawkish remarks at a conference in Houston, TX, hosted on Tuesday by the Dallas Fed and the Kansas City Fed.

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

Main points:

Beyond energy, some price trends are concerning

Recent US hiring has been pretty robust.

Today's Fed benchmark rate remains fairly accommodative

Housing could be described as experiencing an ‘interesting dynamic’, but no restriction is evident elsewhere

Strong demand persists, with rates giving no cause for hesitation

Inflation remains the foremost concern

Digital asset structures will be overtaken by instant payments

Many interesting data points are due before the Fed's December meeting

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

US Dollar: Today's Currency Moves

The US Dollar (USD) recorded its strongest performance against the Australian Dollar today. The table below sets out its percentage moves 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%

Percentage moves between 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) in the corresponding cell.

Fed: Key Questions Answered

Federal Reserve Policy and Its Effect on the US Dollar

The Federal Reserve (Fed) sets US monetary policy with two objectives: stable prices and full employment. Interest rate adjustments are its main means of pursuing these goals. If prices rise too rapidly and inflation exceeds the Fed’s 2% target, the central bank increases interest rates. Borrowing becomes more expensive across the economy. The resulting appeal of the US as a destination for international investment 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 encourage borrowing and put pressure on the Greenback.

Fed Policy Meetings: Frequency and Membership

Eight times a year, the Federal Reserve (Fed) convenes policy meetings at which the Federal Open Market Committee (FOMC) reviews economic conditions and decides monetary policy. Twelve Fed officials attend the FOMC: the 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 serve rotating one-year terms.

Quantitative Easing (QE): How It Affects USD

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

Quantitative Tightening (QT): Implications for the US Dollar

By reversing QE, quantitative tightening (QT) typically supports the US Dollar’s value. The Federal Reserve halts bond purchases from financial institutions and, as its existing bonds mature, does not reinvest the principal in new bonds.