The fed has looked yesterday unworried about the inflation outlook over the medium term as it does about the unemployement.but it has kept its 300$b with new adding valid till the end of october. The Greenback jumped after the Fed's assessment release which improved the US debit position and downplayed the recession risks which have soften in the recent months but it has given back most of its gains because of the US stocks indexes gains which have been added after the assessment. The Dow closed up by 120 points and the asian stocks market are expected to follow these US gains which can improve the risk apitite weighing on the japanese yen and the greenback as a low yielding currencies for financing the the investors' specutlations.
The assessment was not a surprize to the market as it has come as the recent referance of Bernenke in his testimony in front of the congress nearly 2 weeks ago to the current weakness of the labor market which can effect negatively on the consuming spending downplaying the inflation upside risks in the next 2 years and there is no change of the fed's easing policy before an improving of the labor market and he has repeated during the weekend the increasing possibility of recovery amid further loses of jobs can bring the unemployment rate above 10%. The words of this assessment were nearly the same of the recent assessment when The Fed has mentioned that the pace of economic contraction is slowing and the conditions in financial markets have generally improved in recent months. The household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability but some investors were speculating on further added funds to the Fed's currnet quantitive easing plan which has just been extended to the end of october in this meeting supporting the US creditability and the greenback.
God willing, We wait today for the release of US July retail sales which are expected to be up monthly broadly by .3% from .6% in June and excluding the auto sales by .3% as the same as June. The market is watching the current struggling consuming pace closely as the main mover of the economic growth. We have also tomorrow August University of Michigan Consumer Confidence preliminary reading which is expected to get better to 68 from 66 in July. It is important to have a look on the US CPI indexes next Friday too to know the current inflation pressure and the probability of facing a stagflation pressure at this phase of the recession or the inflation upside risks are still tame and there is no risk from it on the US treasuries attractiveness. July US core CPI is expected to be 1.7% y/y and .2% m/m as the same as June while the broad figure excluding the food and energy is expected to be down y/y by 1.8% and up monthly by .1%.