Higher FOMC Rate Outlook Rocks the Dollar Both Higher and Lower
- Fed raises rate expectations for 2015 and 2016
- Fed tapers bond purchases as expected
- USD/JPY rocks in both directions on the release
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The Federal Reserve lowered the pace of its monthly asset purchases by 10 billion dollars to 35 billion and kept the target interest rate at 0.25%, as was expected. However, the combination of the FOMC’s lower inflation projection and higher estimated federal fund rates sent the US Dollar temporarily in both directions in Forex markets before settling near the pre-release levels.
The Fed lowered its growth forecast for 2014 to 2.1%-2.3% from a 2.8%-3.0% forecast in March and the FOMC inflation forecast for 2016 fell to 1.6%-2.0% from 1.7%-2.0% in March. Converse to those slightly more dovish forecasts, the Fed raised its 2016 rate forecast for 2016 to 2.5% from 2.25%, and the rate forecast for 2015 was raised to 1.13% from 1.0%.
Along with the forecasts, the Fed repeated that the rate will likely remain low for considerable time after the end of quantitative easing. The FOMC also noted that economic activity has rebounded in recent months and the labor market has generally showed further improvements. Majority of the FOMC members said they don’t expect a rate hike until 2015.
Further US Dollar volatility may continue with Yellen’s comments to reporters.
-- Written by Baruch Spier, DailyFX Research. Feedback can be sent to firstname.lastname@example.org .
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.