December 12, 2012 FOMC Statement Analysis
Federal Open Market Committee surprised the market today by dropping the 2015 low rates pledge by changing to a target based policy. Specifically, the FOMC pledges to keep rates low until unemployment rate is below 6.5% and Inflation is above the 2.5% target… This basically provided no set timeline for the Feds to keep rates at the current level, and will add to the USD selling trend… Here’s the complete FOMC Statement compared to the previous (October) statement.
Noting the effects of Hurricane Sandy and the fact that inflation is still under control… In short, there are no signs that inflation is driven by QE3, but rather by higher energy prices…
No change in this paragraph, which means the Feds recognized that the U.S. economic recovery is fragile…
Highly anticipated move by the market that the Feds will simply roll over the monthly purchases into the on-going QE3… Nothing surprising here…
No change in this paragraph here… Apparently the FOMC wants to keep its options open.
Surprises the market as generally no one is expecting the Feds to make this kind of change in their statement in December. The overall sentiment is positive as traders now feels that the Feds are much more transparent in their policy decisions. I believe this is a positive sign for risk appetite…
All in all, I see further strength in EUR, and further weaknesses in both USD and JPY. We should see this trend continue into 2013 as global economies recover… I would be short on both USD and JPY.
FOMC Statement Highlight And Analysis
December 13, 2012 by 1 Comment