USD Up and Down After Hawkish FED Speech
Today’s market attitude was mixed, with caution dominating ahead and after Federal Reserve speakers who rejected the idea of FED rate cuts. While US bond rates recovered slightly following a drop yesterday, they eventually gave back their gains, leaving Treasury rates virtually unchanged. European shares closed slightly down, while US futures had a quick rally in the early part of the day before ending slightly higher overall.
Foreign currency markets also suffered some moderate turbulence, with the dollar trading mixed. In currency markets, the GBP/USD climbed 0.2% to 1.2625, with a rebound expected to reach 1.2600-1.2800. Despite a small increase in rates, the USD/JPY was projected to rise 0.2% to 148.23.
No FED Rate Cuts in the Near Future
Boston Fed President Collins has a slightly different perspective, predicting rate decreases later this year if economic circumstances meet forecasts. However, he emphasizes that the existing monetary policy is appropriate for the current economic environment. He accepts that the route to attaining the 2% inflation objective may not be smooth and may include some bumps along the way.
Collins proposes that any rate decreases be introduced gradually and with great study. He supports the FOMC’s recent decision to keep rates stable and emphasizes the need for further evidence before completely endorsing a rate decrease. Collins cites solid January jobs statistics as a reason to be cautious about rate reduction.
Fed Governor Adriana Kugler popped up a bit earlier, looking pleased with the strong progress made on inflation and hoping that this favourable trend will continue. However, she emphasizes that the Fed’s work on inflation is not yet complete and that they will continue to focus on regularly meeting the 2% objective.
Kugler feels that the risks associated with the Fed’s dual goal of maintaining stable prices and maximum employment are now balanced. She describes the Fed’s policy position as restrictive, implying that if inflation and labour market conditions soften, a rate decrease may become justified. However, Kugler warns that if progress toward disinflation slows, the interest rates may need to be kept at their current level for an extended period of time.
Richmond Fed President Barkin shares the mood of prudence about rate decreases, closing the FED marathon, and emphasizing the uncertainties surrounding economic predictions. He appreciates the positive trend of lowering inflation over the last seven months, but is concerned that the fall in goods prices will not be sustained and may reverse course in the future. This cautious approach indicates a willingness to wait for more clear data before making adjustments to monetary policy.
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