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20 Mar 2014
Flash: A hawkish Fed catches market off guard - Westpac
FXStreet (Bali) - Sean Callow, FX Strategist at Westpac, shared his views on Wednesday's FOMC meeting, which turned out to be a major event for the market, giving US Dollar bulls a major impulse north.
Key Quotes
"The FOMC tapered its asset purchases by a further $10bn to $55bn as expected ($30bn treasuries, $25bn agency MBS). The statement described a weaker economy than in the January statement, with tweaks to the language, where made, less upbeat: “growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions” (previously: picked up in recent quarters.) ... household spending and business fixed investment continued to advance (previously: advanced more quickly in recent months) while the recovery in the housing sector remained slow. (prev: slowed somewhat)."
"Hence the FOMC members’ central projections were revised slightly lower for GDP growth in 2014 (2.9% from 3.0% in Dec), but also lower for unemployment (6.2% from 6.45%), and the majority view was that the first rate rise would be earlier in 2015 than in the December projections. The median Fed Funds forecast for 2015 now sits at 1% vs 0.75% in Dec and for 2016 the mass of the distribution is now centered around 2% from 1.50%-1.75%. This seemed to be the main focus for markets which read it as hawkish overall."
"The forward guidance was altered with the reference to 6.5% unemployment dropped but more qualitative information about what will drive the eventual decision to tighten given. (Minn Fed president Kocherlakota voted against this part of the statement)."
Key Quotes
"The FOMC tapered its asset purchases by a further $10bn to $55bn as expected ($30bn treasuries, $25bn agency MBS). The statement described a weaker economy than in the January statement, with tweaks to the language, where made, less upbeat: “growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions” (previously: picked up in recent quarters.) ... household spending and business fixed investment continued to advance (previously: advanced more quickly in recent months) while the recovery in the housing sector remained slow. (prev: slowed somewhat)."
"Hence the FOMC members’ central projections were revised slightly lower for GDP growth in 2014 (2.9% from 3.0% in Dec), but also lower for unemployment (6.2% from 6.45%), and the majority view was that the first rate rise would be earlier in 2015 than in the December projections. The median Fed Funds forecast for 2015 now sits at 1% vs 0.75% in Dec and for 2016 the mass of the distribution is now centered around 2% from 1.50%-1.75%. This seemed to be the main focus for markets which read it as hawkish overall."
"The forward guidance was altered with the reference to 6.5% unemployment dropped but more qualitative information about what will drive the eventual decision to tighten given. (Minn Fed president Kocherlakota voted against this part of the statement)."