October FOMC Statement Analysis

We just received the official October FOMC Statement and here is a quick look at the changes from the September release…

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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 [PREV: “Household spending has continued to advance, but growth in business fixed investment appears to have slowed“]. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation recently picked up somewhat [PREV: “Inflation has been subdued”], reflecting higher energy prices. Longer-term inflation expectations have remained stable.

Very little tweak to the upside with the acknowledgement of better household spending.  However, no concerns on inflation or future inflationary pressures whatsoever, which is somewhat of risk appetite positive in my opinion.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.

No changes in this paragraph, which adds more positiveness to the market as the Feds still remain pessimistic over the future, thus the continuation of QE3.

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To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of Treasury securities [confirms will maintain Twist through year end], and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

No change to QE3 and Operation Twist… Same as the last statement.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

No changes to the forward guidance until mid-2015.  No changes to the “we are watching you, economy” approach. 

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and disagreed with the description of the time period over which a highly accommodative stance of monetary policy will remain appropriate and exceptionally low levels for the federal funds rate are likely to be warranted.

Same guy Lacker voting against both forward guidance AND QE3.  Seems he is the only one.  Overall not a surprise.

How to interpret FOMC Statement?

Seems to me that the market is going to rally because of the fact that the Feds totally ignored the surprise dip in the September Unemployment Rate to 7.8%; judging from this statement, we are seeing the FOMC is totally unchanged in their views of the economy, thus the likelihood for an early ending of QE3 is not high, despite of the positive data we’ve received lately.  Considering also that the Feds are relatively comfortable with the current inflation, as noted in the first paragraph, I believe the market should have no concerns whatsoever.

All in all this is a pro risk appetite report.  Market is once again reminded why the Feds launched QE3, and we should see further strengthening of the EUR following this report.

 

FUNDAMENTALS
Forex Weekly Outlook September 18 ~ 22, 2017
Forex Weekly Outlook August 14 ~ 18, 2017
Forex Weekly Outlook August 7 ~ 11, 2017
Forex Weekly Outlook July 3 ~ 7, 2017
Forex Weekly Outlook June 19 ~ 23, 2017
About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

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