- The Fed holds stable rates, signals the patience of the policy in the context of the increase in the risks of inflation and labor.
- Powell highlights uncertainty, says that Rate Path is not clear.
- The US dollar index bounces to 99.60 after diving after the decision.
The US dollar index recovers 99.60 while Powell adopts a prudent but balanced tone
The US dollar index initially fell to 99.50 after the federal reserve leaves the rates unchanged at 4.5%, citing persistent inflation and rising risks on both sides of its double mandate. The policy declaration has brought a cautious tone, stressing that if the labor market remains solid, uncertainty around economic prospects has increased. Traders briefly evaluated up to three rate drops for the year, but the market conviction has softened over the press conference.
The president of the Fed, Jerome Powell, added nuances to the prospects, declaring that he “cannot say with confidence” what is the appropriate rate path and that the Fed is “not in a situation where we can cut in a preventive way”. He highlighted the need for more data and has focused on patience, noting that the current policy position is “modestly restrictive”. These balanced comments contributed to withdraw the dollar from its stockings, pushing the DXY up to 99.60 while the traders re -evaluated the probability of imminent relaxation. The markets are now looking at inflation and work data for more clarity.
FAQ Nourished
In the United States, monetary policy is shaped by the Federal Reserve (Fed). The Fed has two mandates: reach price stability and promote full employment. Its main tool to achieve these objectives is to adjust interest rates. When prices are increasing too quickly and inflation is greater than the 2% target of the Fed, it increases interest rates, increasing borrowing costs throughout the economy. The result is a stronger US dollar (USD) because it makes the United States 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 reduce interest rates to encourage the loan, which weighs on the greenback.
The Federal Reserve (Fed) organizes eight political meetings per year, where the Federal Open Market Committee (FOMC) assesses the economic conditions and makes monetary policy decisions. The FOMC is assisted by twelve officials of the Fed – the seven members of the Council of Governors, the president of the Federal Reserve Bank of New York and four of the eleven presidents of the remaining regional reserve bank, who have a period of one year on a rotating basis.
In extreme situations, the federal reserve can use a policy called quantitative relaxation (QE). QE is the process by which the Fed considerably increases the credit flow in a stuck financial system. It is a non -standard political 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 implies the Fed Print more dollars and use them to buy high -level bonds from financial institutions. QE generally weakens the US dollar.
The quantitative tightening (QT) is the opposite process of the QE, by which the federal reserve ceases to buy obligations from financial institutions and does not reinvest the principal of the obligations it holds at maturity, to buy new obligations. It is generally positive for the value of the US dollar.
