Jobs data leaves room for Fed policy tightening, Daly says

The jobs report brought good news and pointed to a solid economy, San Francisco Federal Reserve (Fed) President Mary Daly told CNBC in an interview on Friday. She said it “gives latitude to get inflation job done.”

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

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

Daly Signals Further Policy Tightening:

The jobs report brings welcome news

Wages are not growing at a booming pace

I would welcome greater confidence on inflation

A robust labour market provides room to finish the job on inflation

Further policy tightening will be necessary

Uncertainty made holding rates steady at the last meeting appropriate

So far, the AI repricing trade has remained orderly

Growth might ease a little if AI repricing points to slowing demand

The business outlook is viewed with cautious optimism

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

Interest rates could range from slightly restrictive to neutral

The decline in services inflation is not following the pattern we would expect

US Dollar Performs Best Against Australian Dollar Today

Today’s percentage movements in the US Dollar (USD) against the major currencies listed below show its strongest performance was against the Australian Dollar. The table sets out each change.

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%

Percentage movements between the major currencies are displayed in the heat map. Read the base currency from the left-hand column and the quote currency from the top row. To find USD (base)/JPY (quote), for instance, select the US Dollar on the left and follow that row across to the Japanese Yen; the intersecting cell gives the percentage change.

Federal Reserve Explained

The Federal Reserve (Fed) sets US monetary policy with a dual mandate: maintaining price stability and promoting full employment. Adjusting interest rates is its main means of pursuing these objectives. If prices rise too rapidly and inflation exceeds its 2% target, the Fed increases interest rates. Higher borrowing costs across the economy make the US more appealing to international investors seeking a home 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 to stimulate borrowing, putting pressure on the Greenback.

At the Federal Reserve’s (Fed) eight annual policy meetings, the Federal Open Market Committee (FOMC) reviews the economic backdrop and decides on monetary policy. Twelve Fed officials take part: the 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. Those four serve rotating one-year terms.

When circumstances are extreme, the Federal Reserve may turn to Quantitative Easing (QE), a policy that substantially expands the supply of credit through a stalled financial system. 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. The Fed creates more Dollars to purchase high-grade bonds from financial institutions, a process that usually weakens the US Dollar.

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