Fedspeak remains focused on US inflation
On Thursday, Loretta Mester, President of the Federal Reserve Bank of Cleveland, emphasized that maintaining the current levels of Fed policy will aid in returning still-elevated inflation to the 2% target.
Fed Mester additional comments
Current restrictive policy will help lower inflation.
Monetary policy well positioned as fed reviews more data.
It will take longer to gain confidence that inflation is moving towards 2%.
Strong economy means Fed risking little to hold policy in place.
Risks to inflation side of the Fed mandate have increased.
Downside risks to growth, hiring have fallen
Expects gradual progress on lowering inflation.
Welcomes CPI data sign of cooling inflation.
Labor market conditions are strong.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Richmond Federal Reserve Bank President Thomas Barkin told CNBC on Thursday that the latest Consumer Price Index (CPI) showed that inflation is not where the Fed is trying to get, per Reuters.
Fed Barkin additional comments
“Companies are still saying there is no crime in trying to raise prices.”
“Services in particular still feel they can raise prices.”
“Latest retail sales numbers point to a good but not great consumer spending.”
“Overall, labor market numbers are normalizing.”
“Jobless claims are low by historic standards but may be edging up.”
“I do believe inflation is coming down, but will take more time.”
“The question now is for how long rates need to be held where they are to get the required impact on inflation.”
“The inflation story is much longer term than what happens in the market.”
Earlier in the day, Federal Reserve Bank of New York President John Williams said that the doesn’t see the need for a rate cut in the near term. Commenting on the April Consumer Price Index (CPI) data, “kind of a positive development after a few months, where the data were disappointing,” Williams told Reuters in an exclusive interview.
Fed Williams additional comments
“Overall trend for slowing inflation looks good.”
“Optimistic inflation will continue to retreat.”
“Still lack confidence inflation is moving sustainably to 2%.”
“Monetary policy is restrictive and it’s in a good place.”
“No current need to raise interest rates.”
“Economy is moving into better balance.”
“Job market is still tight, but excesses are waning.”
“Hopeful job market can balance without big rise in unemployment.”
“Expecting unemployment to rise to 4% this year.”
“Seeing inflation in low 2% range by year-end, around 2% next year.”
“Need not wait until inflation exactly at 2% to ease policy.”
“Balance sheet policy changes aimed at limiting market impact.”
“Fed balance sheet is still having a modest impact on yields.”
“No major signs of financial market risk.”
FXStreet’s FedTracker, which gauges how dovish or hawkish Fed officials are using a customized AI model, shows the following historical results about the speakers who are making public appearances on Thursday.
Barr’s last speeches have been neutral, while both Mester and Bostic’s remarks were assessed as hawkish to neutral. On the contrary, Harker’s comments have swang between neutral to dovish, but the last commentary is from three months ago.
This section below was published as a preview of the upcoming speeches from Federal Reserve officials at 10:20 GMT.
- Fed policymakers’ comments awaited following the April inflation report.
- Markets see a waning probability of a Fed policy hold in September.
- Fed rate outlook could influence the US Dollar’s valuation.
Federal Reserve (Fed) policymakers are scheduled to deliver speeches on Thursday as investors reassess the interest rate outlook following the April Consumer Price Index (CPI) data. According to the CME FedWatch Tool, the probability of a no change in the Fed’s policy rate in September declined to nearly 25% from 35% before the inflation report.
Fed Vice Chair for Supervision Michael Barr, Philadelphia Fed President Patrick Harker, Cleveland Fed President Loretta Mester and Atlanta Fed President Raphael Bostic are among the Fed officials that will speak in the American session.
The Fed has adopted a cautious tone regarding the timing of the policy pivot following the stronger-than-expected inflation readings in the first quarter of the year. The US Bureau of Labor Statistics reported on Wednesday that the core Consumer Price Index (CPI) rose 3.6% on a yearly basis in April. This reading followed the 3.8% increase recorded in March and came in line with the market expectation. On a monthly basis, the CPI and the core CPI both rose 0.3% after rising 0.4% in March. The US Dollar (USD) came under bearish pressure as market participants assessed the inflation data and the USD Index fell to its lowest level in over a month, losing 0.7% on the day.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.