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The Federal Reserve (Fed) left rates unchanged and said the pace of the recovery has moderated while Chairman Jerome Powell defended the QE policy, saying the Fed discussed it. This Fed meeting did little to impact FX markets, which are currently preoccupied with the US election, economists at TD Securities apprise.

Key quotes

“Fed officials did not announce any new policy action, and changes to the post-meeting statement were minimal, but the chairman once again struck a fairly dovish tone at the press conference.”

“Fed Chairman Powell communicated that officials ‘had a full discussion of the options around quantitative easing,’ adding, ‘we understand the ways in which we can adjust the parameters of it to deliver more accommodation if it turns out to be appropriate.’ We expect the case for more accommodation to build as employment growth, and the economy broadly slows in the months ahead.”

“Powell’s focus on COVID-19 and more fiscal stimulus need highlight some of the tactical concern in chasing a weaker USD from current levels.” 

“While we think a Biden presidency and split congress should see moderate USD weakness over the medium-term, dissipating US election risk will likely magnify the downside risks facing the economy that Powell mentioned. A divided Congress likely means a smaller-sized fiscal package, the timing of which may not be immediate.”