Fed’s Collins: Progress needed for interest rate adjustment will take longer


Federal Reserve Bank of Boston President Susan Collins spoke at “Central Banking in the Post-Pandemic Financial System” on Wednesday. Collins said that progress toward interest rate adjustment will take longer. 

Fed policymakers stick to cautious script after April CPI inflation sparked rate cut hopes

Key quotes

Elevated uncertainty continues to be a feature of the economy, can't overreact to any data point.

Progress needed for interest rate adjustment will take longer.

Fed well positioned, time for patience.

Policy restrictions evident in some indicators. 

Warns of potential longer policy lags due to special factors.

Medium-term underlying neutral rate could be higher.

Patience is the right policy for the Fed.

Market reaction

The US Dollar Index (DXY) is trading 0.04% lower on the day at 104.60, 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 (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It 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 grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD rebounds above 1.0850 as USD weakens after PMI data

EUR/USD rebounds above 1.0850 as USD weakens after PMI data

EUR/USD gains traction and trades at fresh daily highs above 1.0850 on Monday. The disappointing ISM Manufacturing PMI data from the US weighs on the US Dollar and helps the pair stretch higher in the American session.

EUR/USD News

GBP/USD advances toward 1.2800 as USD slides

GBP/USD advances toward 1.2800 as USD slides

GBP/USD gathers bullish momentum and advances toward 1.2800 in the second half of the day on Monday. The US Dollar faces strong selling pressure following the weaker-than-forecast ISM Manufacturing PMI data, fuelling the pair's rally. 

GBP/USD News

Gold rebounds above $2,340 as US yields push lower

Gold rebounds above $2,340 as US yields push lower

Gold extends its recovery and trades above $2,340 in the American session. The benchmark 10-year US Treasury bond yield loses nearly 2% on the day below 4.5% following the disappointing PMI data, providing a boost to XAU/USD.

Gold News

Bitcoin’s momentum poise to propel crypto market

Bitcoin’s momentum poise to propel crypto market

Bitcoin price consolidates in a symmetrical triangle pattern, showing directional bias. Ripple also follows BTC’s footsteps as it continues on its 50-day consolidation streak. Ethereum price, on the other hand, shows signs of an incoming correction.

Read more

Seven fundamentals for the week: Two rate cuts, Nonfarm Payrolls to jolt markets in a packed week Premium

Seven fundamentals for the week: Two rate cuts, Nonfarm Payrolls to jolt markets in a packed week

May's end-of-month flows were wild but directionless – and the first week of June is packed of top-tier events that may shape trends for weeks. Forward-looking surveys, guidance about the next moves from central banks and all-important US job figures are all on the docket.

Read more

Forex MAJORS

Cryptocurrencies

Signatures