The U.S. Federal Reserve on Wednesday said it will not raise interest rates until at least late 2014, even later than investors expected, in an effort to support a sluggish economic recovery.
RICHARD FRANULOVICH, SENIOR CURRENCY STRATEGIST, WESTPAC, NEW YORK
The Fed statement has a dovish flavor to it since the Fed has pushed out keeping rates exceptionally low until late 2014. That's why we are seeing the dollar sell off and yields push lower. The Fed recognizes that the U.S. economy is recovering, but it's not fast enough to push unemployment to acceptable levels. Overall, it would seem like the Fed statement is a risk-on signal. But I wouldn't be comfortable buying the euro because of issues with Greece. I would instead buy the Aussie and Canadian dollar versus the U.S. dollar.
SEAN INCREMONA, ECONOMIST, 4CAST LTD, NEW YORK
The Fed statement saw little changes to current economic conditions and to the tone regarding the outlook in which significant downside risks remain.
While policy remained unchanged, rate guidance was the more pertinent issue ahead of the release of the rate projections later this afternoon. In this respect, rates are now seen unchanged through at least late 2014, well past the original mid-2013 guidance.
The continued dovish tone from the Fed remains intact, which suggests that further Fed releases today should attempt to drive home the point that policy will remain extremely accommodative for quite some time in this environment and there are additional prospects for further action.
JOHN CANALLY INVESTMENT STRATEGIST AND ECONOMIST FOR LPL FINANCIAL IN BOSTON
If you look at the Fed funds futures before the thing and now, they were both kind of saying mid-to-late 2014, so I don't think that was much of a surprise. We will get confirmation of that at 2 p.m. and then see what Bernanke has to say about the rest of it - in other words the balance sheet and any other forward-looking items. For now that is kind of the surprise in the market but based on the futures it really wasn't a surprise.
Everything in the statement looks about the same, a little bit of an upgrade for the economy, still worried about the global slowdown. It doesn't seem to me they are going to change the forecast that much based on this. They were above the Street forecasts in the last couple of forecasts they made, the economy came back towards them, so I don't think they are going to have to change their forecast higher. That's at least what I read from this and at 2 o'clock we will learn more.
JIM VOGEL, INTEREST RATE STRATEGIST, FTN FINANCIAL, MEMPHIS, TENNESSEE
Five-year bonds are responding appropriately. The late 2014 is new information for the market, or otherwise bonds wouldn't have rallied so far.
ANDREW COX, G10 STRATEGIST, CITIFX, NEW YORK
The only change that really pops out and that's significant is removing mid-2013 and revising that to through late 2014. I think it's no surprise to anyone. I don't see anything really new in here and the market had already moved well beyond the mid-2013 language.
GENNADIY GOLDBERG, INTEREST-RATE STRATEGIST, 4CAST, INC., NEW YORK
It's pretty much what the market was expecting, the biggest change obviously was the 'late 2014' statement. The only other more interesting part of the statement was 'the committee expects to maintain a highly accommodative stance to monetary policy.' That's geared obviously toward zero interest rates, but it also means they might support the market through additional quantitative easing. It's keeping hopes of QE3 well alive.
BRIAN DOLAN, CHIEF STRATEGIST, FOREX.COM, BEDMINSTER, NEW JERESY
This is dollar negative. Extending low rates until late 2014 is longer than markets were expecting. The Fed is not indicating any sign of quantitative easing, though. I think what they are seeing is that the rate of growth is not sufficient to bring down the unemployment rate. The biggest pullback could be in the dollar/yen, which had been the biggest gainer today.
DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS
The FOMC's statement is notable for one major change from the last one delivered on December 13, it now expects exceptionally low levels for the Fed Funds rate at least through late 2014, rather at least through mid-2013, thus extending the period by around 18 months. Markets had expected the SEP due later today to see no tightening until 2014, but this statement shows that any 2014 is expected to come late in the year. This is a more dovish statement than expected. All voted for the statement with the exception of Lacker, the one incoming voting hawk, who preferred to omit the description of the time period.
Otherwise the statement makes only subtle changes from the previous one. Business fixed investment is stated to have slowed rather than appears to be increasing less rapidly. The statement still sees housing as depressed despite some recent positive signs.
OMER ESINER, CHIEF MARKET ANALYST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON D.C.
The fact they expect to keep rates at these levels through late 2014 is somewhat bearish for the dollar.
(Americas Economics and Markets Desk)