Japan\u2019s move to defend the yen is adding new pressure on the U.S. dollar while the Federal Reserve weighs whether to cut interest rates or keep them higher for longer.<\/p>\n
Roger J. Kerr, executive chairman of Barrington Treasury Services, framed the Fed\u2019s dilemma in his latest commentary for interest.co.nz as global oil pressure, currency volatility, and mixed U.S. economic signals collide.<\/p>\n
\u201cIf they do not cut interest rates they could send the US economy into recession,\u201d Kerr wrote<\/a>.<\/p>\n But cutting rates carries its own risk.<\/p>\n \u201cIf they cut interest rates and resultant stronger economic activity keeps inflation well above 2,00%, they are outside their mandate,\u201d Kerr wrote.<\/p>\n \u201cThe waiting game continues for the Fed,\u201d Kerr added.<\/p>\n Fed Vote Shows Division<\/p>\n The Federal Reserve left interest rates unchanged<\/a> at its April 29 meeting and kept language in its statement pointing toward possible future rate cuts, according to Kerr.<\/p>\n Three voting members dissented from keeping that forward guidance: Lorie Logan, Beth Hammack, and Neel Kashkari. Kerr described all three as Fed \u201chawks\u201d who have warned about rising inflation and the need for tighter monetary policy.<\/p>\n Eight members voted to keep the easing bias, while Stephen Miran voted for rate cuts.<\/p>\n Fed Chairman Jerome Powell said<\/a> after the April 29 meeting that higher energy prices would push up overall inflation in the near term, while the longer-term economic effects remain unclear.<\/p>\n Japan Moves To Defend Yen<\/p>\n The Fed\u2019s dilemma comes as Japan moves to stop the yen from weakening beyond 160 to the U.S. dollar.<\/p>\n Japanese Finance Minister Satsuki Katayama warned markets last week that Japan was prepared to act against excessive yen volatility.<\/p>\n