Earlier today we wrote about what we can expect from the FOMC and what economic data the Fed was looking at.
As we mentioned the macro-economic data has been better of late, but the Fed statement, while acknowledging the fact, will still remain cautious because of the high unemployment rate. The FOMC may give a nod to stronger consumer spending, which will mean a more optimist picture about the recovery, but at the same time the progress towards a recovery in the labor market and towards price stability will once again be described as disappointingly slow. That means the Fed will stick to its language of keeping rates at exceptionally low levels for an extended period - which has come to mean the next six months and beyond.
In today's statement we stayed pretty close to that pre-release assessment.
On growth: Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions.
On spending: Growth in household spending picked up late last year, but remains constrained...
On Inflation: Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.
Summary on Policy: Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.
Really not much here to go on. The Fed seemed to paint a glass is half-empty outlook, saying that recent growth is not enough to improve labor market. Underlying inflation is in a downtrend. And we had a unanimous decision this time to stay the course in regards to its quantitative easing 2 program.
Overall the release should weaken the USD and help higher yielders as there was no indication that the Fed is thinking about exit strategy or about contemplating tightenign monetary policy.
Until employment and inflation pick up, monetary policy will be loose and the USD should weaken in an environment of risk appetite (higher stocks) and traders and investors seeking higher returns.
That's the conventional wisdom right now and the Fed announcement did nothing to upset that balance.