Fed’s Musalem: Current inflation level continues to concern people

Concerns over current inflation persist despite expectations remaining anchored, St. Louis Federal Reserve (Fed) President Alberto Musalem said on Friday, noting that “people remain concerned about inflation at the current level,”.

Attributing the current excess inflation to energy shocks and the AI buildout, Musalem stressed that the Fed “must return inflation to 2% on a timely basis”.

What were the key takeaways?

Inflation at its current level continues to concern people

Expectations for inflation continue to be anchored

A timely return of inflation to 2% is necessary

Energy shocks and the AI buildout are driving today's excess inflation

An optimistic outlook is supporting rapid growth in both consumption and investment

Much higher productivity will come from AI

Strong demand is being supported by data centre expansion

Effective Fed communication makes policy transmission smoother

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

How Is the US Dollar Performing Today?

The US Dollar recorded its strongest performance against the New Zealand 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		0.61%	0.64%	0.30%	0.63%	0.63%	0.82%	0.43%
EUR	-0.61%		0.03%	-0.32%	0.04%	0.03%	0.21%	-0.18%
GBP	-0.64%	-0.03%		-0.34%	0.00%	0.00%	0.18%	-0.21%
JPY	-0.30%	0.32%	0.34%		0.35%	0.34%	0.53%	0.14%
CAD	-0.63%	-0.04%	-0.01%	-0.35%		-0.01%	0.17%	-0.21%
AUD	-0.63%	-0.03%	0.00%	-0.34%	0.01%		0.18%	-0.20%
NZD	-0.82%	-0.21%	-0.18%	-0.53%	-0.17%	-0.18%		-0.37%
CHF	-0.43%	0.18%	0.21%	-0.14%	0.21%	0.20%	0.37%

Percentage movements between major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. For instance, choosing the US Dollar on the left and following that row across to the Japanese Yen gives the percentage change for USD (base)/JPY (quote) in the corresponding cell.

Fed: Common Questions Answered

How does the Federal Reserve's role affect the US Dollar?

The Federal Reserve (Fed) sets US monetary policy with a dual mandate of maintaining price stability and promoting full employment. Adjustments to interest rates are its main means of meeting these objectives. If prices climb too rapidly and inflation exceeds the Fed's 2% target, the central bank increases interest rates. Borrowing then becomes more expensive across the economy, while the US becomes a more attractive destination for international investors' funds, strengthening the US Dollar (USD). By contrast, inflation below 2% or an excessively high Unemployment Rate may prompt the Fed to cut interest rates to stimulate borrowing. Such a move puts pressure on the Greenback.

What is the schedule for the Fed's monetary policy meetings?

At eight policy meetings each year, the Federal Open Market Committee (FOMC) reviews economic conditions and decides on monetary policy for the Federal Reserve (Fed). Twelve Fed officials attend the FOMC: all seven Board of Governors members, the president of the Federal Reserve Bank of New York, and four of the other eleven regional Reserve Bank presidents. These four presidents rotate through one-year terms.

How does Quantitative Easing (QE) work, and what does it mean for USD?

When conditions become extreme, the Federal Reserve may turn to Quantitative Easing (QE), a policy that substantially expands the supply of credit in a financial system that is not functioning smoothly. Used in crises or periods of exceptionally low inflation, this unconventional measure was the Fed's preferred response during the Great Financial Crisis in 2008. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions. The US Dollar generally weakens as a result.

How does Quantitative Tightening (QT) work, and what does it mean for the US Dollar?

By reversing QE, quantitative tightening (QT) generally supports the US Dollar's value. Under this process, the Federal Reserve halts bond purchases from financial institutions and, as bonds in its portfolio mature, does not reinvest the principal in new bonds.