Fed’s Bostic Focuses on Trajectory of Inflation When Setting Policy 

  • Last week, the U.S Central Bank announced that they will focus more on addressing declines in employment rather than focusing in inflation. The central bank will be revising their approach for setting monetary policy revolving around this concern. 

    “As long as we see the trajectory moving in ways that suggest that we are not spiraling too far away from our target, I’m comfortable just letting the economy run and letting it play out,” – Bostic said in an interview with the Wall Street Journal on Thursday. 

    On Thursday, Bostic said “The Federal Reserve’s understanding of the relationship between employment and inflation has shifted and determining when to raise interest rates will depend more on the trajectory of inflation than the exact level”. 

    Bostic is willing to be stimulative if there are signs of higher inflation or financial stability but for now the Fed officials seems comfortable with leaving the interest rates low.  

    When asked about the Fed’s low rate policy affecting asset prices, Bostic is rather concerned about asset bubbles and said that policy makers should think the same way.  

    He also noted the U.S economic recovery is slowing down due to the struggles of restaurants, hotels and the entertainment business that has been affected severely by the COVID 19 pandemic. Tightening the policy too soon could hurt workers in those industry, he said.  

    “I think it would be a mistake for us to take off some of the relief and support because those places will have a much harder time getting back on their feet,” he said.  

     

    TECHNICAL OUTLOOK  

    EUR/USD 

    As we see on the daily charts of EUR/USD, the euro significantly edged lower than the U.S. dollar on Tuesday. The euro has been beating the USD since July due to economic recovery and the lifting of lockdowns from various countries in Europe. 

    The dollar has been on the defensive for long since the breakout of the COVID 19 pandemic. Despite the dovish tones of the Fed’s Chairman Powell last week, investors focused on the dollar as their safe haven.   

    The EUR/USD chart has resisted at 1.20 on Tuesday. Dollar bulls seem to have control this week. The euro bears may also advance next week and drive the price lower to the first support at 1.17. On Monday next week, we may expect to see volatility all throughout the week as the dollar will try to test all these supports further pushing euro lower. 

     

     

     

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