Fed's Logan: Would find it difficult to cut rates again in December
Dallas Federal Reserve (Fed) President Lorie Logan said on Friday that she did not see a need to cut rates this week; explaining that the economic outlook did not call for it, per Reuters.
Key takeaways
"Would find it difficult to cut rates again in December, unless clear evidence of faster drop in inflation or rapid cooling in labor market."
"Risks to labor market mainly to the downside, but US central bank can address promptly if needed."
"Inflation is not convincingly headed to central bank's 2% target; Fed has an obligation to deliver."
"Labor market roughly balanced, cooling slowly."
"Inflation too high and likely to exceed 2% goal for too much longer."
"Alternative data provides visibility into state of economy."
"Breakeven payroll growth has likely fallen to 30,000 jobs per month."
"Layoffs, unemployment claims have stayed low, though mindful of recent layoff announcements."
"Consumer spending slightly exceeds longer-run trend; stock-market gains fuel wealthier households' demand."
Market reaction
These comments received a hawkish score of 6.8 from FXStreet Fedspeech Tracker. At the time of press, the US Dollar Index was up 0.2% on the day at 99.70.
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.