Fed's Goolsbee warns tariffs are not the only driver of services inflation

The argument that tariffs alone are influencing prices has become harder to sustain as services inflation has accelerated over the last few months, Chicago Federal Reserve (Fed) President Austan Goolsbee reiterated during a Q&A session at the Leadership Greater Chicago event on Monday.

Inflation remains the major concern, according to Goolsbee, even as “employment and growth are actually pretty stable,” he noted. The Fed has “to come to terms with inflation failure.” he stressed.

What were the main takeaways?

Both employment and growth remain fairly stable.

Inflation has accounted for the entire major problem.

The failure on inflation must be confronted.

Signs of rising services inflation are beginning to emerge.

Data centres appear to be showing traditional signs of overheating.

Growth has been driven mainly by consumer spending.

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 Swiss Franc today. The table below sets out the US Dollar's (USD) percentage moves against the major currencies listed.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.45%	-0.38%	-0.22%	0.07%	-0.52%	-1.14%	0.23%
EUR	0.45%		0.07%	0.25%	0.53%	-0.06%	-0.69%	0.68%
GBP	0.38%	-0.07%		0.19%	0.45%	-0.14%	-0.75%	0.61%
JPY	0.22%	-0.25%	-0.19%		0.28%	-0.31%	-0.94%	0.44%
CAD	-0.07%	-0.53%	-0.45%	-0.28%		-0.59%	-1.21%	0.16%
AUD	0.52%	0.06%	0.14%	0.31%	0.59%		-0.63%	0.75%
NZD	1.14%	0.69%	0.75%	0.94%	1.21%	0.63%		1.38%
CHF	-0.23%	-0.68%	-0.61%	-0.44%	-0.16%	-0.75%	-1.38%

Percentage movements between the 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. Choosing the US Dollar on the left and following that row across to the Japanese Yen, for instance, gives the percentage change for USD (base)/JPY (quote) in the corresponding cell.

Fed Questions Answered

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

Responsibility for US monetary policy rests with the Federal Reserve (Fed), whose dual mandate is price stability and full employment. 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 increases interest rates. Borrowing consequently becomes more expensive across the economy, while the US becomes a more appealing destination for international investors' funds, strengthening 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 the Federal Reserve's (Fed) eight policy meetings each year, the Federal Open Market Committee (FOMC) reviews the economy and decides on monetary policy. Twelve Fed officials take part: 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. The latter four serve rotating one-year terms.

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

When faced with extreme conditions, the Federal Reserve may turn to Quantitative Easing (QE) to sharply expand credit flows 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 typically weakens the US Dollar.

Why does Quantitative Tightening (QT) usually support the US Dollar?

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