Fed's Collins backs cautious rate hikes, warns inflation is broadening

“inflation is too high and appears to be broadening,” Boston Federal Reserve (Fed) President Susan Collins said. Her remarks echoed earlier comments from Chicago Fed President Austan Goolsbee.

Speaking to Bloomberg TV on Friday, Collins described recent inflation figures as “less promising than I hope”. While monetary policy has a clear direction, she said, she does not know how high interest rates should rise. Her base-case scenario calls for “careful adjustments” to monetary policy.

Policy highlights:

Excessively high inflation appears to be spreading more widely

Latest inflation figures fall short of my hopes

Monetary policy has a clear direction ahead

The labour market appears firmly supported

I would consider some further policy tightening justified soon

Policy direction is clear; its pace and endpoint remain uncertain

The Fed could need to raise rates beyond expectations

The best-case outcome involves ‘careful adjustment’ of monetary policy

I do not want to specify how far or how quickly rates should move

Higher costs are expected to be passed on to consumers by many firms

Strong demand is prompting some firms to plan further hiring in key sectors

I see signs that financial markets remain stable and operate well

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

US Dollar: Today's Currency Moves

The US Dollar recorded its strongest performance against the Australian Dollar 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		0.19%	0.11%	-0.02%	-0.04%	0.40%	0.30%	0.35%
EUR	-0.19%		-0.08%	-0.19%	-0.22%	0.21%	0.14%	0.16%
GBP	-0.11%	0.08%		-0.13%	-0.13%	0.29%	0.23%	0.24%
JPY	0.02%	0.19%	0.13%		-0.02%	0.41%	0.34%	0.36%
CAD	0.04%	0.22%	0.13%	0.02%		0.43%	0.37%	0.39%
AUD	-0.40%	-0.21%	-0.29%	-0.41%	-0.43%		-0.06%	-0.05%
NZD	-0.30%	-0.14%	-0.23%	-0.34%	-0.37%	0.06%		0.03%
CHF	-0.35%	-0.16%	-0.24%	-0.36%	-0.39%	0.05%	-0.03%

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

Fed: Key Questions Answered

The Federal Reserve's role and its influence on the US Dollar

The Federal Reserve (Fed) sets US monetary policy, with a dual mandate of stable prices and full employment. Adjusting interest rates is its main means of pursuing those objectives. If inflation exceeds the Fed's 2% target and prices climb too rapidly, the central bank increases rates. Borrowing then becomes more expensive across the economy. Higher rates strengthen the US Dollar (USD) by making the US a more appealing destination for international investors' funds. Conversely, inflation below 2% or an excessively high Unemployment Rate may prompt the Fed to cut rates to stimulate borrowing. This puts pressure on the Greenback.

Eight annual Fed 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 monetary policy. Twelve Fed officials attend the FOMC: 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. Those four serve rotating one-year terms.

Quantitative Easing (QE): implications for USD

Quantitative Easing (QE) is a policy the Federal Reserve may deploy in extreme circumstances to substantially expand credit flows when the financial system is stalled. This unconventional measure is used in crises or periods of extremely low inflation. During the Great Financial Crisis in 2008, it was the Fed's preferred policy tool. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions. The US Dollar typically weakens as a result.

Quantitative Tightening (QT): implications for the US Dollar

Usually supportive of the US Dollar, Quantitative tightening (QT) reverses QE. The Federal Reserve halts bond purchases from financial institutions and, as bonds in its portfolio mature, does not reinvest the principal in new bonds.