Federal Reserve Bank of St. Louis President Alberto Musalem said Monday that he supports additional interest rate cuts as the economy moves forward. Musalem further stated that performance will determine the path of monetary policy, according to Reuters.
Key quotes
Additional gradual reductions in the policy rate over time are likely to be appropriate.
I will not prejudge the size or timing of future policy adjustments.
Personal rate outlook is above the Fed’s median view.
Given the current state of the economy, I believe the costs of relaxing too soon are greater than the costs of relaxing too little too late.
This is because persistent or higher inflation would pose a threat to the Fed’s credibility and to future employment and economic activity.
I supported the Fed’s decision last month to cut rates by 50 basis points.
Inflation may stop converging towards the 2% target.
But I think the risks of inflation stagnating above 2% or rising from here have diminished.
A cooler labor market remains consistent with a strong economy.
Financial conditions remain favorable for growth.
Part of economic activity is slowed down by rate policy and electoral uncertainty.
The September jobs report was very strong.
The labor market is strong; is healthy.
There is no emergency in the labor market at this time.
The jobs report did not cause a change in the outlook.
The current policy path remains appropriate despite the employment data.
I don’t pay much attention to the market’s assessment of the Fed’s outlook.
I will not prejudge the outcome of the upcoming Fed meetings.
The Fed dot chart is helpful in understanding the Fed’s actions.
Market reaction
The US Dollar Index (DXY) is trading 0.03% lower on the day at 102.45, at the time of writing.
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.
