Fed's Kashkari: Too soon to know the effect of tariffs on inflation

Key quotes

Too soon to know the effect of tariffs on inflation.
Impact of tariffs taking longer to be felt than had guessed.
Expect services inflation to trend down, possible that goods inflation could spill over.
Job market is slowing down.
Its challenging to read signals without core government data because of the shut down.
Most folks say they are still concerned about inflation.
Fed prioritizing labor market over inflation control could lead to bad outcomes for workers.
Private credit bears watching; cautious about if it’s suitable for a 401K.
Leaders on both sides of the aisle believe in an independent Fed.
Pleased to see Supreme Court in May said Fed was a unique institution.
US economy is far and away the strongest economy in the world.
Immigration is a tool for economic growth, should we choose to use it.
Housing affordability crisis can’t be solved by interest rate cuts; need more housing supply.
More risk of labor market negative surprise than an uptick in inflation.
We are likely betting the economy is slowing more than it really is.
Take concerns about soy beans very seriously, but not something the Fed can do something about.
The longer the government shut down lasts, the less confident we are that we are reading the economy correctly.

Market reaction

At the time of writing, the US dollar Index (DXY) is trading around 98.27, down 0.40% on the day.

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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