Federal Reserve: Monetary policy report cites “high inflation” due to tariffs

Key highlights:

INFLATION REMAINS ELEVATED, DRIVEN BY TARIFFS AND FACTORS RELATED TO MIDDLE EAST WAR, AI

ALREADY STRONG INFLATION TICKED UP FURTHER IN THE SPRING

LABOR MARKET BROADLY STABLE, 'SOLID' NOMINAL WAGE GROWTH HAS BEEN JOINED BY ‘STRONG’ PRODUCTIVITY GAINS

ECONOMIC ACTIVITY EXPANDING AT SOLID PACE DESPITE ELEVATED UNCERTAINTY DUE TO IRAN WAR

M2 MONEY SUPPLY GROWTH RATES WERE MODERATE AND BROADLY SIMILAR TO THE PACE TYPICALLY OBSERVED DURING THE 2010S

LABOR SUPPLY GROWTH DOWN ON IMMIGRATION SLOW DOWN, DEMOGRAPHIC SHIFT

SMALL BUSINESSES AND HOUSEHOLDS CONTINUED TO FACE RELATIVELY TIGHT CREDIT CONDITIONS

FIRST QUARTER 2026 GROWTH BOLSTERED BY HIGH TECH INVESTMENT, GOVERNMENT SPENDING

MEASURES OF LONG-TERM INFLATION EXPECTATIONS ‘BROADLY CONSISTENT’ WITH 2% GOAL

IN MOST CASES, FUNDS IMPOSED REDEMPTION LIMITS, AND PRIVATE CREDIT MARKETS CONTINUED TO FUNCTION NORMALLY

SOME PRIVATE CREDIT VEHICLES FACED NOTABLE INCREASES IN REDEMPTION REQUESTS IN Q1, REFLECTING SOME DEFAULTS AND CONCERNS ABOUT UNDERLYING ASSET QUALITY

ACTIVITY IN HOUSING MARKET HAS BEEN ‘STAGNANT’

STRONG FACTORY OUTPUT DRIVEN BY DATA CENTER INVESTMENT TIED TO AI; US PRODUCTIVE CAPACITY RISING AT 'SOLID PACE'

FOREIGN ECONOMIC ACTIVITY GROWTH WAS SUBDUED IN H1 2026 FROM HEADWINDS FROM MIDDLE EAST CONFLICT

AND US TARIFFS, PARTIALLY OFFSET BY AI INVESTMENT

FINANCIAL SYSTEM REMAINED ‘SOUND AND RESILIENT,’ VULNERABILITIES UNCHANGED

BANK RESERVES REMAIN IN ‘AMPLE’ RANGE AMID RESERVE MANAGEMENT BUYING

ASSET VALUES IN STOCKS, CORPORATE DEBT, RESIDENTIAL REAL ESTATE ABOVE HISTORIC NORMS

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.