MNI: Tackling Inflation Supports Confidence In Dollar - Powell

Tackling inflation and bringing prices back down to the central bank's 2% target will support confidence in the dollar, Federal Reserve Chair Jerome Powell Friday said Friday, but he warned that rapid changes in the global monetary system could impact the international role of the dollar over time.

"The Federal Reserve’s strong commitment to our price stability mandate contributes to the widespread confidence in the dollar as a store of value. To that end, my colleagues and I are acutely focused on returning inflation to our 2 percent objective," Powell said in remarks for a Fed board conference on the international roles of the dollar.

Earlier this week Chair Powell said either a 50 basis point or a 75 basis point interest rate increase "seems likely” at the July meeting, while the FOMC projected 175 basis points of further rate increases over its next four meetings to the end of the year. (See: MNI STATE OF PLAY: Fed Lays Path To Restrictive Stance Near 4%)

DUAL MANDATE

In his written remarks, Powell also stressed financial stability as a source of support for the dollar. "Meeting our dual mandate also depends on maintaining financial stability. The Fed’s commitment to both our dual mandate and financial stability encourages the international community to hold and use dollars."

"Looking forward, rapid changes are taking place in the global monetary system that may affect the international role of the dollar in the future," he said. "Most major economies already have or are in the process of developing instant, 24/7 payments. Our own FedNow service will be coming online in 2023."

The Fed is also considering a central bank digital currency and issued a white paper in January. "As we consider feedback from the paper, we will be thinking not just about the current state of the world, but also how the global financial system might evolve over the next 5 to 10 years," Powell said.