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Oct 30 2014, 8.00am GMT


Overall dovish statements from the FOMC align with their view that “economic activity is expanding at a moderate pace.”


Changes from last statement concur with this sentiment:

  • “significant underutilization of labor resources” changed to “underutilization of labor resources is gradually diminishing”.
  • “longer-term inflation expectations had “remained stable” changed to “market-based measures of inflation compensation have declined somewhat”.
  • “considerable time” for change in funds rate was left in.

FOMC decided:

  • to end the third round of quantitative easing
  • to conclude its asset purchase program, $15bn of monthly bond purchases, this month
  • to maintain the current 0 to 0.25 percentage range for the federal funds rate
  • maintain its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities
  • rolling over maturing Treasury securities at auction

Optimistic highlights:

  • Solid job gains and a lower unemployment rate
  • Household spending is rising moderately
  • Business fixed investment is advancing
  • Inflation has continued to run below the Committee’s longer-run objective
  • Survey-based measures of longer-term inflation expectations have remained stable
  • the likelihood of inflation running persistently below 2 percent has diminished

Future expectations:

  • maximum employment
  • price stability
  • activity will expand at a moderate pace
  • labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate
  • inflation in the near term will likely be held down by lower energy prices and other factors

The FED however, left the door open to change: “if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.”

Market reactions:

  • US dollar rallied
  • S&P fell 13 points and then recovered to almost unchanged
  • US government bond prices down
  • Gold down $16 (more than 1%)
  • Asian markets: USD/JPY up as much as 0.3 percent to Y109.1, Nikkei 225 rose 0.7 percent
  • Hang Seng contracted 0.6 percent, Shanghai Composite rose by 0.6 percent
  • Australia’s S&P/ASX 200 gained 0.5 per cent

(Financial Times figures)

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