Raphael Bostic, President of the Federal Reserve Bank of Atlanta, announced on Friday that he now predicts just one interest rate cut for this year, revising down his earlier forecast of two cuts. Bostic attributed this adjustment to ongoing inflation and robust economic data, which have surpassed expectations.
Key Points from Bostic’s Remarks
- Bostic noted that the economy has demonstrated greater resilience than initially anticipated, leading him to double his GDP growth estimate to 2%.
- He emphasized that the unemployment rate, currently at 3.9%, is expected to remain relatively stable, indicating little to no change.
- Previously considered an inflationary threshold, the 3.9% unemployment rate is now seen as manageable.
- While inflation is gradually declining, Bostic highlighted that certain goods continue to experience significant price hikes.
- Bostic expressed optimism about an economy growing above its potential, coupled with low unemployment and moderating inflation, which he views as positive indicators.
Market Response
In response to Bostic’s remarks, the US Dollar Index (DXY) saw a slight uptick, trading 0.03% higher at 104.46 as of the latest update.
FED FAQS
What does the Federal Reserve do, how does it impact the US Dollar?
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.
How often does the Fed hold monetary policy meetings?
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.
What is Quantitative Easing (QE) and how does it impact USD?
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.
What is Quantitative Tightening (QT) and how does it impact 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.
