Fed's Hammack: Labor market stabilizing, policy around neutral
Cleveland Fed President Beth Hammack is crossing the wires. She said that the Unemployment Rate is stabilizing, following the release of the strong January Nonfarm Payrolls report in the US.

Cleveland Fed President Beth Hammack is crossing the wires. She said that the Unemployment Rate is stabilizing, following the release of the strong January Nonfarm Payrolls report in the US.

Hammack added that the labor market looks like its finding a healthy balance and reiterated that it is important for the Fed to get back inflation to the 2% goal. She added that policy is “right around neutral,” and that it’s good for the Fed to hold rats unchanged.

Key takeaways:

"Unemployment rate looks like it's stabilizing."
" Labor market looks like it's finding healthy balance."
"Consumer spending is holding in, driven by upper incomes."
"Important for Fed to get infaltion back to 2%."
"Current Fed funds rate is right around neutral."
"Good for the Fed to stay on hold right now, doesn't need to fine-tune rate policy."
"I don't think rates putting much restraint on the economy."
"Right now, I think the Fed should stay on hold here."
"US government debt is on an unsustainable path, and it must be dealt with."

Fed FAQs

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.

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.

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.

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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