untitled design

Fed’s Cook sees US data consistent with soft landing

Federal Reserve Board Governor Lisa Cook spoke on “Global Inflation and Monetary Policy Challenges” at the Australian Economists Conference 2024 on Thursday afternoon. Cook said U.S. inflation should continue to fall without a significant rise in the unemployment rate, according to Reuters.

Key quotes

My baseline forecast… is that inflation will continue to move toward target over time, without a significant rise in unemployment,

It is more likely when policy easing began with inflation already close to target and when there was a relatively firm growth environment.

In the US, what I’ve seen so far appears to be consistent with a soft landing: inflation has fallen significantly from its peak, and the labor market has gradually cooled but remains strong.

Market reaction

The US Dollar Index (DXY) is trading 0.02% lower on the day at 104.99, at the time of writing.

The Fed FAQs

Monetary policy in the United States is directed by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and to promote full employment. Its main tool for achieving these goals is to adjust interest rates. When prices rise too quickly and inflation exceeds the Fed’s 2% target, the Fed raises interest rates, increasing borrowing costs throughout the economy. This translates into a strengthening of the 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 can lower interest rates to encourage borrowing, which weighs on the greenback.

The Federal Reserve (Fed) holds eight meetings a year, at which the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC consists 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 regional Reserve bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a jammed 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 typically 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 maturing bonds in its portfolio to buy new bonds. It is usually positive for the value of the US dollar.

Source: Fx Street

You may also like

Get the latest

Stay Informed: Get the Latest Updates and Insights


Most popular