Fed’s Goolsbee: CPI data indicate inflation on 2% path

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.