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St Louis Federal Reserve (Fed) President Alberto Musalem said on Friday that the Fed should revert to cutting interest rates “gradually”, after a larger than usual half-point reduction in the September meeting, per Financial Times. Key quotes  “For me, it’s about easing off the brake at this stage. It’s about making policy gradually less restrictive.”  “I’m attuned to the fact that the economy could weaken more than I currently expect. “If that were the case, then a faster pace of rate reductions might be appropriate.”  Market reaction The US Dollar Index (DXY) is trading 0.02% higher on the day at 100.43, as of writing. 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 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 resort to a policy named Quantitative Easing…

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Filed under: News - @ September 29, 2024 11:49 pm