US Federal Reserve Bank

Federal Reserve

US Central Bank

Monetary Policy

Monetary policy in the United States comprises the Federal Reserve’s actions and communications to promote maximum employment, stable prices, and moderate long-term interest rates–the three economic goals the Congress has instructed the Federal Reserve to pursue.

The Federal Reserve conducts the nation’s monetary policy by managing the level of short-term interest rates and influencing the overall availability and cost of credit in the economy. Monetary policy directly affects short-term interest rates; it indirectly affects longer-term interest rates, currency exchange rates, and prices of equities and other assets and thus wealth. Through these channels, monetary policy influences household spending, business investment, production, employment, and inflation in the United States.

Mandate

The Fed focuses on the following, so it is important to watch related macroeconomic data releases that include them:

  1. Maximum Employment
  2. Stable Prices (Inflation) – Target: 2.00% – Actual: 2.3%
  3. Moderate long term interest rates – Actual: 1.75%

USD Fundamental Outlook

Central Bank

Economic Data

Geopolitics

US-CHINA Trade

Sentiment

The Federal Reserve Outlook

Current Bank Rate

2.5%

Statement

DOVISH

Target Inflation

2.00%

Sentiment

USD CPI Y/Y – Monthly Release

April 2019

2.1%

May 2019

2.0%

June 2019

2.1%

Sentiment

USD Unemployment Rate – Monthly Release

April 2019

3.6%

May 2019

3.6%

June 2019

3.7%

Sentiment

USD GDP Final – Quarterly Release

GDP Q3 2018

2.2%

GDP Q4 2018

3.1%

GDP Q1 2019

3.1%

Sentiment

EMPLOYMENT

HIGH IMPACTING – All the following occurring at the same time. First Friday of the next month 2:30pm GMT.

Trading Recommendations – Not Recommended

Trading the employment figures is not recommended, multiple data releases occuring at the same time and subject to large revisions to prior periods. Wait until the release is complete to see if the overall direction of the release is in line with the overall economic outlook.

NFP – Non Farm Payrolls

HIGH IMPACTINGGREATER THAN FORECAST = GOOD FOR USD

This is probably the biggest number watched each month by traders. This shows the number jobs gained or lost in the previous month. To offset population growth this figure needs to approximately 200,000 jobs per month to keep the unemployment rate steady. Traders/Market reacts to any figure that is between the forecast and actual figures and an aggressive move if a variance outside minimum and maximum values. This indicates a large shift from the norm.

Unemployment Rate

HIGH IMPACTING ACTUAL LESS THAN FORECAST = GOOD FOR USD

This measures unemployed people searching for a job. Increases in unemployment rate figures indicates a ‘potential’ weakness in the economy.

Average Hourly Earnings

HIGH IMPACTINGACTUAL GREATER THAN FORECAST = GOOD FOR USD

This is the change in in employee wages. It is a good indicator on the consumer spending (affects inflation) by indicating if wages are rising or falling.

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ADP – National Employment Report

Release Date: Wednesday 2:15pm GMT

MEDIUM IMPACTACTUAL GREATER THAN FORECAST = GOOD FOR USD

Payroll data from 23 Million plus employees and excludes military and govt employees.. This comes out 2 days before the NFP. It is an alternative (or backup) measurement of the labor market. Market reaction is limited and so has a medium impact.

INFLATION

HIGH IMPACTING

Trading Recommendations:

CPI – Consumer Price Index

HIGH IMPACTINGACTUAL GREATER THAN FORECAST = GOOD FOR USD

Why? – Because an increase in inflation may trigger the FED to increase interest rates ( to manage its Stable Price Mandate) to put the brakes on inflation. Increased interest rates attracts investment in the USD.

This is a key indicator of inflation.

PPI – Producer Price Index

MEDIUM IMPACTACTUAL GREATER THAN FORECAST = GOOD FOR USD

A secondary metric – As wholesalers increase or decrease their prices between each other this will ultimately be passed on to the consumer and reflected in the CPI figure above. Its a potential indicator or what could be coming in the next CPI release.

 

 

 

 

 

More about the Federal Reserve

CHAIR:
Jerome Powell (Chairman)
BOARD MEMBERS:
R Clarida (Vice Chairman)
L Brainard
R Quarles

Learn more about the FEDERAL RESERVE & how they determine Monetary Policy

Purpose & Functions

Monetary Policy

Structure of the Federal Reserve System