Fed's Williams: Fed can still cut rates in near term
Federal Reserve (Fed) Bank of New York President John Williams said on Friday that the Fed can still cut rates in the near term, given current policy is modestly restrictive, per Reuters.
Key takeaways
"Inflation progress has stalled, but should be on track to 2% in 2027."
"Tariffs have increased prices but are not expected to lead to persistent inflation."
"Economic growth has slowed and the labor market gradually cooled."
"Labor market now comparable to pre-pandemic years when it was not overheated."
"Imperative that Fed meet its inflation target, but without undue risk to maximum employment goal."
Market reaction
These comments received a neutral score of 4.8 from FXStreet Fed Speechtracker. Meanwhile, the US Dollar Index continues to move sideways in a tight daily range above 100.00.
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.