Jobs data leaves scope for policy tightening, says Fed’s Daly

A solid economy provides room to complete the fight against inflation, San Francisco Federal Reserve (Fed) President Mary Daly told CNBC in an interview on Friday. Welcoming the jobs report, she said it “gives latitude to get inflation job done.”

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

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

What are the key takeaways?

The jobs report is encouraging

There is no boom in wage growth

I would prefer greater confidence on inflation

A resilient jobs market offers room to finish the task of tackling inflation

Further policy tightening will be necessary

Given the uncertainty, leaving rates unchanged at the previous meeting was appropriate

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

If AI repricing indicates softer demand, growth might ease a little

The business outlook is viewed with cautious optimism

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

Rates could range from slightly restrictive to neutral

The decline in services inflation is not unfolding as we would expect

How Is the US Dollar Performing Today?

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 of percentage movements between major currencies, select the base currency in the left-hand column and the quote currency in the top row. For instance, selecting 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.

Key Questions About the Fed

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

Tasked with maintaining price stability and promoting full employment, the Federal Reserve (Fed) sets US monetary policy. Changes to interest rates are its main means of pursuing these two objectives. If prices climb too rapidly and inflation exceeds the Fed’s 2% target, the central bank raises interest 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 interest rates. Such cuts encourage borrowing but put 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 the economy and decides monetary policy for the Federal Reserve (Fed). Twelve Fed officials attend the FOMC: all seven members of the Board of Governors, 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.

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

When circumstances are extreme, the Federal Reserve may turn to Quantitative Easing (QE) to sharply expand the supply of credit through a stalled financial system. This unconventional policy is deployed 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, a process that generally weakens the US Dollar.

How does Quantitative Tightening (QT) work, and why does it affect the US Dollar?

As the opposite of QE, Quantitative Tightening (QT) involves the Federal Reserve halting bond purchases from financial institutions. It also refrains from using principal repayments on maturing bonds in its portfolio to buy fresh bonds. This process generally supports the value of the US Dollar.