Fed's Schmid: Surging oil is weighing on spending power

Additional remarks

Some evidence AI is depressing hiring but not driving firing.

US economy less exposed to energy shock relative to the past.

Main focus is on getting inflation back to 2% target.

So far, US energy producers have not been moving to invest in more production.

Most data points to continued economic growth.

Job market in balance, buoyed in part by healthcare hiring.

Fed must signal commitment to lowering inflation.

My primary concern is inflation, which is ‘too hot’.

I place little stock in believing recent inflation jump is transitory.

Low hiring is a more general phenomenon, not only due to AI.

The Fed must signal commitment to price stability.

Market reaction

There seems to be no immediate response by the US Dollar (USD) to Fed Schmid's comments. As of writing, the US Dollar Index (DXY) trades 0.1% higher at around 99.10.

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.