Federal Reserve official Christopher Waller indicated that the outlook for interest rates after October will largely depend on the performance of the labor market. He stressed that any future rate cuts, beyond the one expected at the next meeting, will depend on economic data yet to come. Waller’s remarks come as inflation continues to move towards the Fed’s target of 2%, a development he believes should not obstruct the possibility of lower rates.
Waller made a really key point. He found that the neutral interest rate is roughly 100 to 125 basis points below today’s Federal Funds Rate. While this signals a potential for future changes, there appears to be some flexibility to make changes later if the right economic indicators fall into place. On a more positive note, he warned that the pace of rate cuts could be more gradual. This would only occur if Gross Domestic Product (GDP) remains robust, or if the labor market tightens considerably.
The U.S. dollar had mixed moves against all major currencies after Waller’s comments. It was down 0.08% vs the euro and down 0.26% vs the British pound. On the other hand, it gained 0.06% against Japanese yen and 0.15% against Australian dollar. The loonie was up marginally, gaining 0.01% versus the greenback. By contrast, the kiwi dollar fell 0.16%. The Swiss franc gained, if slightly, at 0.13% up against the dollar.
At the same time, euro exchange rates showed a mixed performance. It was up 0.08% in value against the U.S. dollar, but down 0.17% against the pound and down 0.12% against the yen. The euro was up against the Aussie and loonie, 0.16% and 0.06%, respectively.
The British pound gained on the day overall, strengthening 0.26% vs the U.S. dollar. Or rather, it made impressive gains against other currencies, climbing 0.39% versus the yen and 0.24% vs the loonie. On the other hand, it was less positive movement against the New Zealand dollar, advancing just 0.07%.
The Japanese yen fell by 0.06% vs the U.S. dollar. It suffered commensurate declines against the euro and British pound. It was at least able to manage a rise of 0.16% against the Australian dollar.
Meanwhile the loonie, as the Canadian dollar is popularly known, eked out narrow gains amid muted action. By comparison, the Australian dollar weakened against all G10 currencies, down 0.15% against the greenback.