Boston Federal Reserve Bank (Fed) President Susan Collins told a slow European session on Thursday that she believed the central bank would keep interest rates at current levels for an extended period of time. Collins added that she expects the bottom line scenario going forward will be interest rate cuts.
Comments
I prefer to adjust the wording that signals cutting bias.
You can expect rates to remain unchanged “for a longer period of time.”
Interest rate cuts are still expected “well into the future.”
I strongly support the decision to maintain interest rates.
An alternative scenario could prompt the Fed to consider a rate hike.
Market reaction
It appears that Fed Collins’ comments will have no immediate impact on the US dollar (USD). At the time of writing, the US Dollar Index (DXY) fell 0.1% to almost 97.90 amid risk-on sentiment.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two missions: achieving price stability and promoting full employment. The basic tool for achieving these goals is adjusting interest rates. When prices rise too quick and inflation exceeds the Fed’s 2% target, the Fed raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US dollar (USD) because it makes the United States a more attractive place for international investors to park their money. When inflation falls below 2% or the unemployment rate becomes too high, the Fed may lower interest rates to encourage borrowing, which will negatively impact the dollar.
The Federal Reserve (Fed) holds eight policy meetings a year, during which the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. Twelve Fed officials attend the FOMC meeting – seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional reserve bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may exploit a policy called quantitative easing (QE). QE is the process by which the Fed significantly increases the flow of credit in the gridlocked financial system. This is an unusual policy measure used during crises or when inflation is extremely low. This was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE tends to weaken the US dollar.
Quantitative Tightening (QT) is the reverse process of QE, in which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest capital from the bonds it holds at maturity to purchase modern bonds. This is usually positive for the value of the US dollar.
