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Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee said on Thursday that they could return to a situation where interest rates could come down if tariffs are avoided by a deal or otherwise, per Reuters. “If politics controls the interest rate, inflation is coming back,” Goolsbee added and further noted that sometimes the central bank has to do what the political apparatus doesn’t enjoy. Key takeaways “Stagflation is the toughest scenario for a central bank; that’s not what we are facing now.” “This is a stagflationary direction, but it’s not stagflation.” Market reaction The US Dollar Index stays under bearish pressure following these comments and was last seen losing 0.45% on the day at 99.45. FXStreet Speech Tracker provided a score of 5.4 to these comments, suggesting that they were relatively neutral. Meanwhile, FXStreet Fed Sentiment Index stays in hawkish territory above 110.00. Fed FAQs Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback. The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the…

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Filed under: News - @ May 29, 2025 7:22 pm