Rates close to neutral, says Fed’s Barkin, with no December signal

On debt levels, Richmond Federal Reserve (Fed) President Tom Barkin said that “government, not consumer debt is at a historic level.” Speaking at the Greater Greer Chamber of Commerce in South Carolina, he also said he had “no base case” for interest rates at the December meeting.

Despite a healthy latest jobs report, Barkin said he continued to see a low-hire, low-fire environment. He suggested that the “current policy rate [is] likely around or slightly below neutral”.

Main takeaways:

Debt is at a historic level for government, not consumers

December meeting has no base case

Economic impact of elections is difficult to gauge

Policy rate is likely near neutral or slightly below it

Having two full months of economic data available for each Fed policy meeting would be an advantage

Despite a healthy latest jobs report, firms still appear to be in a low-hire, low-fire environment.

I do not expect ballot measures passed in recent elections to obstruct data centre expansion; firms will find locations to build

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

0.07% Against CAD: US Dollar Today

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

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.56%	-0.55%	-0.30%	0.07%	-0.69%	-1.45%	0.04%
EUR	0.56%		0.01%	0.27%	0.63%	-0.14%	-0.89%	0.60%
GBP	0.55%	-0.01%		0.28%	0.61%	-0.15%	-0.90%	0.59%
JPY	0.30%	-0.27%	-0.28%		0.35%	-0.41%	-1.17%	0.32%
CAD	-0.07%	-0.63%	-0.61%	-0.35%		-0.76%	-1.51%	-0.02%
AUD	0.69%	0.14%	0.15%	0.41%	0.76%		-0.75%	0.74%
NZD	1.45%	0.89%	0.90%	1.17%	1.51%	0.75%		1.50%
CHF	-0.04%	-0.60%	-0.59%	-0.32%	0.02%	-0.74%	-1.50%

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

Fed Policy Explained

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

Price stability and full employment are the two mandates of the Federal Reserve (Fed), which sets US monetary policy. Adjusting interest rates is its main means of pursuing these objectives. If prices climb too rapidly and inflation exceeds the Fed’s 2% target, the central bank raises rates. Higher borrowing costs across the economy make the US more attractive to international investors seeking a place for their funds, strengthening the US Dollar (USD). Conversely, inflation below 2% or an excessively high unemployment rate may prompt the Fed to cut rates. This encourages borrowing and puts downward pressure on the US Dollar.

Eight Meetings a Year: The Fed’s Policy Schedule

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

Quantitative Easing (QE): Credit Expansion and USD Weakness

To substantially increase credit flows through a stalled financial system, the Federal Reserve may turn to Quantitative Easing (QE) in extreme circumstances. This unconventional policy is deployed during crises or periods of extremely low inflation. During the Great Financial Crisis in 2008, it was the Fed’s preferred tool. The Fed creates more Dollars to purchase high-grade bonds from financial institutions, a process that typically weakens the US Dollar.

Quantitative Tightening (QT): Support for the US Dollar

By halting bond purchases from financial institutions and leaving principal from maturing bond holdings unreinvested in new bonds, the Federal Reserve carries out quantitative tightening (QT). This reverses QE and generally supports the value of the US Dollar.