- Fed officials' comments on interest rates and the inflation outlook will be closely scrutinized this week.
- The Fed's statements could help reverberate market expectations for a decision to maintain rates in September.
- The Fed's rate outlook could significantly impact the value of the US dollar against its main rivals.
lFederal Reserve policymakers are scheduled to make appearances on Tuesday as markets return to trading in anticipation of the high-impact US PCE release later this week.
Meanwhile, the US dollar remains under moderate selling pressure this week, extending Friday's decline, driven by an unexpected easing in the University of Michigan's 5-year Consumer Inflation Expectations for May. The reading was 3.0%, below April's 3.1% and the market consensus of 3.1%. Markets are pricing in a 50% chance that the Fed will hold interest rates on hold in September, according to the CME Group's FedWatch tool.
Last week, Fed policymakers leaned in favor of a cautious stance on the inflation outlook, raising concerns among market participants about possible Fed rate cuts this year. Therefore, upcoming speeches by Fed Governor Michelle Bowman and Cleveland Fed President Loretta Mester in the Asian session will be closely watched by markets to assess the path forward for interest rates. interest.
Both officials will participate in a round table titled “Policy Discussion” at the Institute for Monetary and Economic Studies of the Bank of Japan, in Tokyo. The event is scheduled for 04:55 GMT.
Later in the American session, Fed Governor Lisa Cook and San Francisco Fed President Mary Daly will take the stage to share their thoughts in a panel discussion titled “AI and the Economy” at an event hosted by the Federal Reserve Bank of San Francisco.
The Fed FAQs
The monetary policy of the United States is directed by the Federal Reserve (Fed). The Fed has two mandates: achieving price stability and promoting full employment. Your main tool to achieve these objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the Federal Reserve's 2% target, it raises interest rates, raising borrowing costs throughout the economy. This translates into a strengthening of the US Dollar (USD), as 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 encourage borrowing, which weighs on the greenback.
The Federal Reserve (Fed) holds eight meetings a 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 Federal Reserve officials: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the eleven presidents of the regional Reserve banks, who serve for one year on a rotating basis.
In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a clogged 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 of 2008. It involves the Fed printing more dollars and using them to buy high-quality 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 capital of the maturing bonds it has in its portfolio 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.
