Fed's Daly: Employment, inflation risks roughly in balance
Federal Reserve Bank of San Francisco President Mary Daly said on Friday that she sees the Fed’s monetary policy stance as “in a good place,” with risks to its US employment and price stability mandates as roughly equal, per Bloomberg.
Key quotes
So far the economy is in a good place and so is policy.
Concerns about tariff impact on inflation aren't as large as they were when they were first announced.
Many possibilities for how much tariffs pass through to customers.
Fundamentals of the economy are moving to where an interest rate cut may be necessary.
CEOs have cautious optimism on tariffs.
I look more to the autumn rather than July for a rate cut.
Unless we see a faltering labor market, autumn looks more appropriate.
Market reaction
The US Dollar Index (DXY) is trading 0.29% higher on the day at 99.05, as of writing.
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.