The Federal Reserve reduced its bond buying program by another $10 billion to $55 billion per month, as expected. The focus is on the FOMC economic forecasts accompanying the statement and later on, on the press conference by Yellen. The Fed removed the 6.5% threshold.
Currencies have been trading steadily towards the publication, with EUR/USD around 1.3910, GBP/USD around 1.6630, USD/JPY at 101.60, AUD/USD at 0.9120, USD/CAD at 1.1150 and NZD/USD around 0.8630. The dollar is stronger across the board.
- The Fed upgraded the unemployment forecasts: 6.1-6.3% instead of 6.3-6.6% in the December meeting.
- Growth forecasts have somewhat been lowered to the downside.
- No change in inflation forecasts: it remains 1.4-1.6% for 2014.
- The Fed acknowledges the impact of weather on the economy.
Market reactions:
- EUR/USD breaks below critical support, approaches trend line – that line was a clear separator of ranges.
- USD/CAD at new 4 year high on Fed decision – the loonie was already vulnerable before the publication.
- AUD/USD nosedives towards 0.90 on the Fed decision – the recent rally was erased.
Analysis: 5 reasons for USD rally on the Fed decision
Here is the opening part of the statement:
Information received since the Federal Open Market Committee met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated.
There was one dissenter from the decision: Narayana Kocherlakota dissented to the dovish side, saying that the commitment regarding inflation is not strict enough.
In the press conference, Janet Yellen is giving a good performance, conveying a message of continuity and fending off questions.
You can watch the live coverage of the Fed here.
This is the first rate decision by Fed Chiar Janet Yellen, and her first press conference. She had successful public appearances at testimonies on Capitol Hill.
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