Kugler speech missed the mark …
On 22 April 2025, Federal Reserve Board governor Adriana D. Kugler gave a speech on the transmission of monetary policy through the economy. Governor Kugler explained how the Federal Open Market Committee (FOMC) manages monetary policy by adjusting the federal funds rate, the rate at which banks make uncollateralized overnight loans of their reserves to each other.
Monetary policy is the use of interest rates by the central bank to meet the statutory goals of maximum employment and stable consumer prices. Governor Kugler points out that when the Federal Reserve communicates on the future path of the federal funds rate, the communication informs households and businesses about the future of longer-term rates.
The first impression I got from reading her speech about how policy is transmitted was that of an irrigation system where tributaries of water are seeping into the soil and the nourishment from the water helps to grow plants, trees, or other vegetation. (Sorry. I don’t play a farmer on TV, nor did I sleep at a Holiday Inn last night.)
Her description of the impact on the economy from the manipulation of the federal funds could have been a bit fuller had she explained the fed funds rate as what it is: a reference rate.
According to financial website Investopedia, a reference rate is an interest rate benchmark used to set other interest rates. The most common among these benchmarks are the fed funds rate, the Secured Overnight Financing Rate (SOFR), the prime rate, and the rate on benchmark Treasury securities such as the two-year and ten-year notes.
For my purposes, buying and selling an event contract, I am interested in what reference rate is used in a particular contract. The Board of Governors, as the public agency portion of the Federal Reserve System, is responsible for spinning a narrative makes the public confident that the Fed’s monetary policy (action plan) on employment and consumer prices will benefit the electorate.
I am not arguing that Governor Kugler is being disingenuous. It is just that her description of policy transmission is not giving me as complete a picture as I need for making the right bet on where prices on event contracts and other futures and forward contracts are going.
Speaking of where prices are going …
The mainstream press is attributing yesterday’s strengthened dollar in part to President Trump clarifying his position on firing Federal Reserve Board chairman Jerome Powell. President Trump reiterated his displeasure with Chairman Powell’s interest rate policy while emphasizing that the press got his position wrong on his desire to fire the Chairman. In my blog post yesterday, I noted that firing Chairman Powell would be difficult given that the President would have to show cause.
Foreign exchange markets may be calming down, whether as a result of Trump backpedaling or not. Yesterday morning around 9:00 am AST, the EUR/USD was trading at 1.1406, according to data from x-rates.com. At 4:50 pm AST, the pair was trading at 1.1312.
The USD also strengthened against the yen. Again, according to x-rates.com data, the USD/JPY traded at 141.86 at 9:00 am AST but by 4:50 pm AST, the pair rose to 143.48.
The NADEX gives the EUR/USD a probability of .62 (scale of zero to one) that the pair will close Friday above 1.1325.
Alton Drew
24 April 2025
Disclaimer: The above post should not be treated as trading advice. Allegedly 99% of retail forex traders fail, so do your own research as opposed to listening to blokes on YouTube.
Alton Drew
Thanks for coming along with me on my trading journey.
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