FOMC As Expected
13/08/09 00:08
The latest FOMC decision was as expected, with no
change to the Fed Funds target range and no
additional purchases of Treasurys. The dollar
immediately strengthened following the statement
before it gave up its gains just as quickly as
investors remain uncertain whether previous
correlations between risk-seeking and dollar weakness
should persist. But the FOMC statement, at the very
least, did not spark a mass exodus from the dollar.
The August 12 FOMC statement repeated the line from previous statements signaling no increase in the funds rate for "an extended period"; that line is likely to be removed well in advance of an increase in the funds rate. The statement was changed a little to reflect relative improvement in the economic data recently, with signs that "economic activity is leveling out" (ie, not contracting anymore).
The August 12 FOMC statement repeated the line from previous statements signaling no increase in the funds rate for "an extended period"; that line is likely to be removed well in advance of an increase in the funds rate. The statement was changed a little to reflect relative improvement in the economic data recently, with signs that "economic activity is leveling out" (ie, not contracting anymore).
However, optimism remained subdued, with only minimal additional changes to the growth paragraph. Officials indicated that the Treasury securities portion of the asset purchase program will not be expanded beyond the originally scheduled $300B total, although the remaining purchases will be stretched out more, with the program ending in October instead of September. They did not indicate whether the mortgage-related part of the program, which has longer to run, will be expanded, or stretched out.
Overall, the statement was largely as we expected, consistent with officials remaining hopeful that policy measures already in place will be successful in helping produce "a gradual resumption of sustainable economic growth &," but also believing there will be no rush to tighten. Our economists expect total Fed assets and the monetary base to start declining before the first increase in the funds rate, which they forecast in mid-2010, but only after further expansion from asset purchases and the TALF.
Ref: UBS, Reuters