Jobs data leaves Fed scope to tighten policy, Daly says

The jobs report brought good news, according to San Francisco Federal Reserve (Fed) President Mary Daly. Speaking to CNBC on Friday, she described the economy as solid, saying it “gives latitude to get inflation job done.”

With uncertainty persisting, leaving rates unchanged at the last meeting was appropriate, Daly said. However, the Fed “will have to tighten policy further”. She also noted that “AI repricing signals slowing of demand growth might come down a little.”

Daly’s Main Points:

The jobs report delivered positive news

Wages are not growing at a booming pace

I would prefer to have greater confidence about inflation

A robust labour market provides room to finish the inflation job

Further policy tightening will be necessary

Uncertainty justified keeping rates on hold at the last meeting

So far, the AI repricing trade has proceeded in an orderly manner

If AI repricing points to weaker demand, growth might ease a little

The business outlook is one of cautious optimism

Looking beyond the 'painful' volatility, this is the sort of rebalancing one would hope to see

Rates may be in a range from slightly restrictive to neutral

Services inflation is not easing as we would expect

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Today’s US Dollar Performance

The US Dollar recorded its strongest performance against the Australian Dollar today. The table below sets out the percentage changes in the US Dollar (USD) against the major currencies listed.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.66%	0.71%	0.32%	0.81%	1.00%	0.97%	0.37%
EUR	-0.66%		0.04%	-0.34%	0.16%	0.34%	0.31%	-0.29%
GBP	-0.71%	-0.04%		-0.38%	0.12%	0.30%	0.27%	-0.33%
JPY	-0.32%	0.34%	0.38%		0.51%	0.68%	0.65%	0.06%
CAD	-0.81%	-0.16%	-0.12%	-0.51%		0.17%	0.15%	-0.45%
AUD	-1.00%	-0.34%	-0.30%	-0.68%	-0.17%		-0.03%	-0.63%
NZD	-0.97%	-0.31%	-0.27%	-0.65%	-0.15%	0.03%		-0.58%
CHF	-0.37%	0.29%	0.33%	-0.06%	0.45%	0.63%	0.58%

To read the heat map, select the base currency in the left-hand column and the quote currency in the top row. Each cell gives the percentage change between those major currencies. For instance, selecting the US Dollar on the left and following its row across to the Japanese Yen shows the percentage change for USD (base)/JPY (quote).

Federal Reserve: Key Questions

The Federal Reserve’s Role and Its Influence on the US Dollar

Adjusting interest rates is the Federal Reserve’s (Fed) main tool for conducting US monetary policy. Its dual mandate is to maintain price stability and promote full employment. If prices climb too rapidly and inflation exceeds the Fed’s 2% target, the central bank raises rates. Borrowing becomes more expensive across the economy, while the US becomes a more attractive destination for international investment. This strengthens the US Dollar (USD). Conversely, inflation below 2% or an excessively high unemployment rate may prompt the Fed to cut rates to stimulate borrowing. That puts pressure on the US Dollar.

Eight Meetings a Year: The Fed’s Policy Schedule

Eight times a year, the Federal Reserve (Fed) convenes policy meetings at which the Federal Open Market Committee (FOMC) reviews the economy and decides monetary policy. Twelve Fed officials attend the FOMC: all seven Board of Governors members, the president of the Federal Reserve Bank of New York, and four presidents drawn from the other eleven regional Reserve Banks. Those four serve rotating one-year terms.

Quantitative Easing (QE): How It Affects USD

A sharp increase in credit flowing through a stalled financial system is the aim of Quantitative Easing (QE), a policy the Federal Reserve may adopt in extreme circumstances. This unconventional measure is used in crises or periods of exceptionally low inflation. During the Great Financial Crisis in 2008, it was the Fed’s preferred tool. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions. The US Dollar typically weakens as a result.

Quantitative Tightening (QT): The US Dollar Impact

Usually supportive of the US Dollar, quantitative tightening (QT) reverses QE. The Federal Reserve ceases bond purchases from financial institutions and, when bonds in its portfolio mature, does not reinvest the principal in new bonds.