Fed's Barkin: Not much confidence in any inflation forecast at this point

Key takeaways

"Companies want to pass costs on, but consumers are trading down and shopping carefully."

"Inflation is moving in the wrong direction, but so is unemployment."

"Productivity and customer pushback is helping with inflation."

"Expect limited increases in unemployment rate."

"The uncertainty around the economy is starting to lift, but new announcements will be a setback to the sectors that are covered by them."

"Fed is going to have to adjust its stance as it learns more."

"The neutral rate is not that useful as an operational tool in making policy."

"What is more helpful is how the economy is reacting in real time."

"Not sure if Fed will change the policy rate it targets."

"Have to be attentive to how little the fed knows right now about how inflation and unemployment will evolve."

Market reaction

These comments received a hawkish score of 6.2 from FXStreet Fed Speech Tracker. Meanwhile, FXStreet Fed Sentiment Index stays in hawkish territory slightly above 110 after these remarks.

At the time of press, the US Dollar Index was virtually unchanged on the day at 98.44.

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.