In its monetary policy report to Congress, published on Friday, the Federal Reserve said that inflation is somewhat high, while the labor market remains in good shape, according to Reuters.
Key points
“Some early signals that tariffs are driving inflation.”
“It is still early to evaluate the impact of tariffs on the economy.”
“The impact of tariffs has not yet been reflected in the official data.”
“Financial stability is resilient amid high uncertainty.”
“Decline generalized in the value of the dollar in the currency market.”
“Tariffs have weighed on the feeling of homes and companies.”
“Slow start of 2025 linked to tariff -related adjustments.”
“In early April, the operation of the treasury market remained orderly, but liquidity fell to levels not seen since the beginning of 2023.”
“Liquidity was also materially deteriorated in the markets of shares, corporate bonds and municipal bonds.”
“The liquidity in the markets has improved since then, but the conditions are still sensitive to the news about commercial policy.”
Market reaction
The US dollar index retreated from the maximums of the session after this publication and was last losing 0.1% in the day to 98.70.
Fed Faqs
The monetary policy of the United States is directed by the Federal Reserve (FED). The Fed has two mandates: to achieve prices stability and promote full employment. Its main tool to achieve these objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the objective of 2% set by the Federal Reserve, it rises interest rates, increasing the costs of loans throughout the economy. This translates into a strengthening of the US dollar (USD), since it makes the United States a more attractive place for international investors to place their money. When inflation falls below 2% or the unemployment rate is too high, the Federal Reserve can lower interest rates to foster indebtedness, which weighs on the green ticket.
The Federal Reserve (FED) celebrates eight meetings per year, in which the Federal Open Market Committee (FOMC) evaluates the economic situation and makes monetary policy decisions. The FOMC is made up of twelve officials of the Federal Reserve: the seven members of the Council of Governors, the president of the Bank of the Federal Reserve of New York and four of the eleven presidents of the regional banks of the Reserve, who exercise their positions for a year in a rotary form.
In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). The 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 weapon chosen by the Fed during the great financial crisis of 2008. It is that the Fed prints more dollars and uses them to buy high quality bonds of financial institutions. The one usually weakens the US dollar.
The quantitative hardening (QT) is the inverse process to the QE, for which the Federal Reserve stops buying bonds from financial institutions and does not reinvote the capital of the bonds that it has in portfolio that they expire, to buy new bonds. It is usually positive for the value of the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
