Fed Leaves Policy Unchanged – Currencies Stable

The Federal Reserve left its policy unchanged in its October meeting.  Language on the economy has been slightly modified. Operation Twist will continue until the end of the year and the rate pledge remains unchanged – until mid 2015.  QE3 continues at the pace of $40 billion per month – no change, as expected.

The only change was a somewhat more positive regarding household spending, but this is a very mild change. EUR/USD traded around the 1.2960 line befor ethe publication, and USD/JPY was around 79.75.

Here is the opening part of the statement:

Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to expand at a moderate pace in recent months.   Growth in employment has been slow, and the unemployment rate remains elevated.   Household spending has advanced a bit more quickly, but growth in business fixed investment has slowed.   The housing sector has shown some further signs of improvement, albeit from a depressed level.   Inflation recently picked up somewhat, reflecting higher energy prices.   Longer-term inflation expectations have remained stable.

Needless to say, the Federal Funds Rate remained unchanged. There were reports that Ben Bernanke will not continue as the Chairman when his term ends at the beginning of 2014.

Expectations for action by the Fed were very low. In the last meeting, the Fed announced QE3. This was a big decision, that needs time to be evaluated.

So this time, Bernanke and his colleagues were expected to leave both policy and forecasts unchanged, especially as the US elections are just around the corner.

Sales of new homes (released earlier in the day), showed continuing improvement in this sector. Manufacturing remains weaker.