THE TAKEAWAY: [FOMC August meeting minutes take on dovish tone] > [More support for further QE soon if sustained U.S. growth doesn’t pick up] > [USDJPY bearish]
The Federal Reserve took on a decisively more dovish tone in the minutes released today from its August monetary policy meeting. The Fed announced its decision on August 1 to keep its key interest rate on hold at 0.25 percent, while maintaining a neutral “wait-and-see” approach to monetary policy.
However, the minutes published today painted a clearer picture, revealing that many of the FOMC members saw additional quantitative easing as a means to bolstering U.S. recovery and favoring further easing soon if sustained growth of the U.S. economy doesn’t pick up. Discussions also turned to the possibility of extending the FOMC’s 2014 forecast for maintaining low rates.
Key points from the minutes are summarized as follows:
- Many on FOMC favored easing soon if no sustained growth pickup.
- Many participants saw new QE as bolstering U.S. recovery.
- Discussed QE, extending 2014 forecast on rate.
- Markets have large capacity to handle more QE.
- Long-term inflation expectations stable. Mid-term inflation at or below 2% target.
- Participants saw economy decelerating after June meeting, and see moderate growth in coming quarters.
- Risk from Europe, U.S. fiscal policy. Some participants said U.S. recovery vulnerable to shocks.
- Manufacturing was slow or falling.
USDJPY 1-minute Chart: August 22, 2012
Chart created using Market Scope – Prepared by Tzu-Wen Chen
The U.S. dollar took a nosedive as the dovish minutes raised the possibility of further monetary easing by the Fed. At the time this report was written, the greenback had tumbled over 70 pips against the Japanese yen, the alternative safe haven currency, to trade at 78.36 yen.
--- Written by Tzu-Wen Chen, DailyFX Research
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