Fed Does Nothing

The dollar has rallied following news that the Federal Reserve did nothing. They did not change their assessment of the economy, the committment to keep rates low for a prolonged period of time, or the amount of Treasuries or other long-term assets to be purchased. Nor did the Fed say anything about an exit strategy.The pace of economic contraction is slowing, the Fed says, essentially the same assessment as in April, the last FOMC meeting. Spending is also showing furhter signs of stabilizing but remain hampered by rising unemployment. It recognizes that commodity prices have risen, but that the slack in the economy will prevent inflation from taking root.

The knee-jerk dollar gains probably reflect the fact that the Fed is not stepping up its purchases of Treasuries. The Treasury market did not like it, with 10-year yields rising 8-10 bp on the announcement. The risk is that the dollar gains are short lived as the market looks past the FOMC decision.
Fed Does Nothing Fed Does Nothing Reviewed by magonomics on June 24, 2009 Rating: 5
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