Fed's Daly: US economy still solid, officials can be patient
Federal Reserve Bank of San Francisco President Mary Daly said late Wednesday that the strength of the US economy allows policymakers to be patient as they wait for more evidence of how the US President Donald Trump’s policies will affect businesses and households, per Bloomberg.
Key quotes
Monetary policy is well-positioned, moderately restrictive.
Businesses are cautious amid uncertainty, but not stalling out.
Solid growth, solid labor market, declining inflation, that’s where we want to be.
Fed policy can respond to whatever comes into the economy.
Patience is the word of the day.
Loan demand is solid, credits are good.
Any guidance on policy would be speculative and wrong, given the uncertainty.
Market reaction
The US Dollar Index (DXY) is trading 0.07% lower on the day at 100.99, as of writing.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger 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 may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining 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 named Quantitative Easing (QE). 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 Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade 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 principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.