Fed’s Logan expects two more hikes: could winter tightening gather pace?

At least two further 25-basis-point rate hikes will be required from the Fed, Dallas Federal Reserve (Fed) President Lorie Logan said on Tuesday. She put the Fed 50 basis points short of a “modestly restrictive level.”

A gradual approach to policy adjustments can limit the risk of a sharp deterioration in economic activity, Logan told the 11th joint energy conference hosted by the Federal Reserve banks of Dallas and Kansas City. She nevertheless cautioned that “more rapid rate hikes possibly needed this winter,” adding that, following two rate increases, “it would make sense to pause” and review whether further action might be required.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

What are the key takeaways?

At least two further quarter-percentage-point rate hikes are clearly needed from the Fed

This winter may call for a faster pace of rate increases

The US central bank may be able to lift interest rates this winter at a quicker pace than it has so far

A gradual approach to policy adjustments can limit the risk of an unnecessarily sharp deterioration in economic activity

Promptly bringing the outlook and risks for inflation and employment into balance is important

Rather than providing an independent boost to activity, higher bond-market rates indicate that monetary policy still has work to do

Following two further rate increases, a pause to review what additional action may be appropriate would make sense

A modestly restrictive level remains at least 50 basis points above the Fed policy rate

Price pressures stem from more than wartime energy disruptions

Inflationary pressures are being reinforced by accommodative policy; data suggest the real Fed funds rate stands at 78 basis points

A higher-than-expected consumer price index raises concerns that personal consumption expenditures inflation could increase

The labour market remains balanced, with even a slight tightening

The inflation trend is running significantly above the 2% target

Strong economic growth is accompanied by solid consumer spending and robust business spending

Tariffs do not account for all price pressures, and the broader trend is likely to continue

How Is the US Dollar Performing Today?

The US Dollar recorded its strongest performance against the Australian Dollar today. The table below sets out the US Dollar's (USD) percentage changes against the listed major currencies.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.60%	0.81%	0.52%	0.61%	1.04%	0.72%	0.86%
EUR	-0.60%		0.20%	-0.07%	0.02%	0.44%	0.13%	0.26%
GBP	-0.81%	-0.20%		-0.28%	-0.18%	0.23%	-0.08%	0.05%
JPY	-0.52%	0.07%	0.28%		0.09%	0.51%	0.19%	0.32%
CAD	-0.61%	-0.02%	0.18%	-0.09%		0.42%	0.10%	0.24%
AUD	-1.04%	-0.44%	-0.23%	-0.51%	-0.42%		-0.31%	-0.19%
NZD	-0.72%	-0.13%	0.08%	-0.19%	-0.10%	0.31%		0.14%
CHF	-0.86%	-0.26%	-0.05%	-0.32%	-0.24%	0.19%	-0.14%

Percentage movements between major currencies are displayed in the heat map. To read a currency pair, select its base currency in the left-hand column and its quote currency in the top row. Selecting the US Dollar on the left and following that row across to the Japanese Yen, for instance, gives the percentage change for USD (base)/JPY (quote) in the corresponding cell.

Common Questions About the Fed

How does the Federal Reserve's role affect the US Dollar?

Price stability and full employment are the two mandates of the Federal Reserve (Fed), which sets US monetary policy. Adjustments to interest rates are its main means of pursuing these objectives. If prices climb too rapidly and inflation exceeds the Fed’s 2% target, the central bank increases interest rates. Borrowing consequently becomes more expensive across the economy, while the US becomes a more attractive destination for international investors' funds, strengthening the US Dollar (USD). Conversely, inflation below 2% or an excessively high Unemployment Rate may prompt the Fed to cut interest rates to stimulate borrowing. Such cuts weigh on the Greenback.

What is the schedule for the Fed's monetary policy meetings?

Economic conditions are reviewed and monetary policy decisions taken by the Federal Open Market Committee (FOMC) at the Federal Reserve's (Fed) eight policy meetings each year. Twelve Fed officials participate in the FOMC: the seven Board of Governors members, the president of the Federal Reserve Bank of New York, and four of the other eleven regional Reserve Bank presidents. These four hold rotating one-year terms.

How does Quantitative Easing (QE) work, and what does it mean for USD?

When financial conditions become extreme, the Federal Reserve may turn to Quantitative Easing (QE), a policy that substantially expands credit flows through a stalled financial system. This unconventional measure is deployed during crises or periods of exceptionally low inflation. During the Great Financial Crisis in 2008, it was the Fed’s preferred policy tool. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions. The US Dollar typically weakens as a result.

Why does Quantitative Tightening (QT) tend to support the US Dollar?

Usually supportive of the US Dollar's value, Quantitative tightening (QT) reverses QE. The Federal Reserve ceases bond purchases from financial institutions and, as bonds in its portfolio mature, does not reinvest the principal in new bonds.