Fed's Williams: In support of further interest rate cuts this year

Key takeaways

"Did not believe the economy was on the verge of a recession."

"Slowdown in monthly jobs growth, coupled with other signs that companies are more hesitant to hire, warrants attention."

"In terms of inflation, my view is that the tariffs have increased imported goods prices."

"Fed had flexibility to shore up labor market because inflation outlook did not appear as dire as it did earlier in the year."

Tariffs have boosted inflation by maybe a quarter of a percentage point, up to a half point, in terms of the price level."

"Underlying inflation seems to be moving gradually lower toward 2 percent."

"I don’t see any signs of second-round effects or factors that could be amplifying the effects of tariffs on inflation."

It was appropriate to bring interest rates back to a neutral setting."

"Monetary policy is still modestly restrictive"

Market reaction

These comments received a neutral/dovish score of 4.2 from FXStreet Fed Speech Tracker. Meanwhile, the US Dollar (USD) preserves its strength against its peers. At the time of press, the USD Index was up 0.15% on the day near 99.00.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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