What is Quantitative Easing? A Guide to This Monetary Policy Tool

Members commenced their discussion of financial conditions by considering central bank policy settings in advanced economies. The US Federal Reserve (Fed) and the Bank of Canada (BoC) had both cut their official rate by 25 basis points at their October meetings, as expected, while the Reserve Bank of New Zealand (RBNZ) had cut its official rate by 50 basis points. Members noted that inflation remained above target in these economies. The BoC and RBNZ expected inflation to decline to their targets over the period ahead, given significant spare capacity in their economies. The Fed had responded to weaker labour market conditions, while noting that inflation was expected to moderate over time but with risks still tilted to the upside. In many advanced economies, market expectations were for policy rates to be cut further over the coming year as economic conditions weaken. However, policy rates were expected to be steady in Canada, where policy had already been eased significantly, and in the euro area, where the unemployment rate remained low and inflation was close to target. The Bank of Japan was expected to raise its policy rate further in response to persistent inflationary pressures, despite ongoing weak growth. Members noted that the Fed had announced in October that it would conclude its balance sheet runoff. This reflected a judgement that reserves were reaching ‘ample’ levels, given signs of pressure in a range of US money market rates. Sovereign bond yields had fallen noticeably in the United States, Canada and New Zealand over preceding months, as expectations for the future path of policy rates had declined. In the United States, market measures of short-term inflation compensation had also fallen, though longer term measures had remained relatively stable. Long-term government bond yields in Australia were little changed. RBA: It’s unclear if monetary policy is still restrictive, unlike the definitive signals in 2024. RBA: Australian dollar remains aligned with estimated fair value. RBA SAYS POLICY EASING COULD STILL OCCUR IF THE LABOR MARKET WEAKENS SIGNIFICANTLY OR GROWTH FALLS SHORT. ... RBA: CASH RATE COULD STAY AT PRESENT LEVEL IF ECONOMIC DEMAND RECOVERS FASTER THAN EXPECTED. ...

Thank you, President Schmid, for the kind introduction and for the invitation to speak here today.1 It is an honor to be in Kansas City and in the beautiful 10th District. I welcome the opportunity to attend events like this one because I believe it is essential for Federal Reserve policymakers to share their views with the public and, just as important, to hear directly from business leaders, workers, and families about how they are experiencing the economy. In many ways, the Kansas City region is a perfect place to make those connections. Sitting at the confluence of the Kansas and Missouri rivers, this area has been a place where people met and shared ideas long before the United States existed. And that tradition of making connections has continued to present day. The Pony Express was founded just north of here in St. Joseph, this is the greeting card capital, and, next year, this area will bring people together from around the globe for soccer's World Cup. I am happy to have the opportunity to continue the tradition of making connections in Kansas City with all of you. Today I would like to share my economic outlook. I will discuss how I see recent economic activity and talk about developments pertaining to both sides of our dual mandate of maximum employment and price stability. I will then offer my current view of monetary policy including the Fed's balance sheet before turning to our discussion. Economic Outlook In shaping my economic outlook, I consider a wide variety of government, administrative, and private-sector data, including data collected by the Kansas City Fed and fellow Reserve Banks across the country. Casting a wide net for i Fed's Jefferson: It's unclear how much official data will come before the meeting Fed's Jefferson: Current Fed policy rate still somewhat restrictive. Fed's Jefferson: The balance of risks has shifted in recent months, with increased potential downside to employment Fed Vice Chair Philip Jefferson did little to build the case for either a December rate cut or an extended pause: “The evolving balance of risks underscores the need to proceed slowly as we approach the neutral rate.” Recent cuts were appropriate because the balance of risks…

Sticky inflation, murky economic data, and growing divisions inside the Federal Reserve could create an inflection point for monetary policy in just a few weeks. Markets were pricing in a near-certain December interest-rate cut not long ago. Even some Fed officials expected the central bank to deliver a third reduction in 2025. Now it looks more like a coin ...