FXstreet.com (Barcelona) - Marc Chandler, Global Head of
Currency Strategy at Brown Brothers Harriman comments that
yesterday evening, the Federal Reserve was as aggressively dovish
as was expected.
He notes that the bank added $45bln a month in US Treasury
purchases to QE, keeping the $40bln a month of MBS purchases
currently in place. It also changed from time reference for
guidance to use of inflation and even there it is dovish,
indicating rates will remain low as long as inflation is below 2.5%
and unemployment is above 6.5%.
Chandler notes that is was the main focus of his statement and the
general economic assessment seemed little changed and Lacker
continued with his dissent, opposing the new asset purchases and
the "characterisation of conditions" that exceptionally low
interest rates would be justified.
He writes, "The euro had been bid just prior to the FOMC statement
on news that Berlusconi indicated he may withdraw his candidacy if
Monti would run. The FOMC announcement saw the dollar decline
across the board. Treasury yields rose. The 30-year yield was
already at one month highs prior to the FOMC outcome. The
5-year/5-year forward that Fed officials has sometimes cited for a
measure of inflation expectations was near 18 month highs and
spiked higher on the announcement. The equity market advanced on
Chandler finishes by concluding that the expansion of the open-end
QE is not surprising. He suspects that there may be some
disappointment that the Fed did not boost its MBS purchases and had
previously suggested that the Fed may not have double downed on QE.
He writes, "The move to macro-economic guidance has been discussed,
but most thought it likely to be adopted in early 2013. The
guidance is such that it reinforces the idea that the Fed will not
be raising rates in for some time--not in 2013, and not in 2014 and
maybe not even in 2015."