Two more hikes expected by Fed’s Logan, who flags faster winter tightening

At least two additional 25-basis-point rate hikes are needed, Dallas Federal Reserve (Fed) President Lorie Logan said on Tuesday. She put the Fed 50 basis points below a “modestly restrictive level.”

Speaking at the 11th joint energy conference hosted by the Federal Reserve banks of Dallas and Kansas City, Logan warned that “more rapid rate hikes possibly needed this winter,” while noting that gradual policy adjustments can limit the risk of a sharp deterioration in economic activity. After two rate increases, she said, “it would make sense to pause” and assess whether further action was required.

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

Policy and economic highlights:

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

This winter could require a faster pace of rate hikes

Interest rates could potentially rise faster this winter than the US central bank has raised them so far

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

The outlook and risks for inflation and employment need to be brought into balance promptly

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

A pause after two further rate hikes would make sense to assess what additional action might be appropriate

At least 50 basis points separate the Fed policy rate from a modestly restrictive level

Price pressures stem from more than wartime energy disruptions

Inflationary pressures are being amplified by accommodative policy; data suggest a real Fed funds rate of 78 basis points

The stronger-than-expected consumer price index raises concern that personal consumption expenditures inflation could increase

The labour market is in balance and is even tightening slightly

The inflation trend is significantly above the 2% goal

Solid consumer spending and robust business spending accompany strong economic growth

Tariffs alone do not explain price pressures, and the broader trend is likely to continue

US Dollar: Today's Percentage Moves

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

	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. Select the base currency in the left-hand column and the quote currency in the top row. Selecting the US Dollar on the left and following its row across to the Japanese Yen, for instance, gives the percentage change for USD (base)/JPY (quote) in the corresponding cell.

Fed: Frequently Asked Questions

The Federal Reserve's role and its influence on the US Dollar

The Federal Reserve (Fed) sets US monetary policy with two objectives: stable prices and full employment. Interest-rate adjustments are its main means of pursuing those objectives. If prices climb too rapidly and inflation exceeds its 2% target, the Fed raises interest rates. Borrowing 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. That puts downward pressure on the Greenback.

The Fed's monetary policy meeting schedule

Eight times a year, the Federal Reserve (Fed) convenes policy meetings at which the Federal Open Market Committee (FOMC) reviews economic conditions and decides monetary policy. Twelve Fed officials attend the FOMC: all 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. Those four serve rotating one-year terms.

Quantitative Easing (QE): the mechanism and its effect on USD

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

Quantitative Tightening (QT): the mechanism and its effect on the US Dollar

By reversing QE, Quantitative tightening (QT) generally supports the US Dollar's value. Under QT, the Federal Reserve halts bond purchases from financial institutions and does not use principal repaid on its maturing bond holdings to buy new bonds.