No change in Fed policy as expected. The statement is balanced but somewhat cautious. They removed the reference to risks being balanced and they are stock sensitive – monitoring financial developments. The decision was unanimous – also the new voting hawks voted for this cautious statement. They also talk about a slowdown in the US economy towards the end of the year.
There is a safe haven reaction with a stronger euro, a stronger yen, while commodity currencies and the pound are weakening..
From the statement:
The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook
The Federal Reserve was not expected to make any policy changes after the historic rate hike in the previous meeting. The focus is on any hint towards March: is a rate hike still on the cards, and if not, is it because of the economy or because of markets? This is the first FOMC vote in 2016, and the composition is more hawkish than in 2015. However, the doves are in control.
In general, there was a positive “risk on†atmosphere in markets be
fore the release, with commodity currencies and oil gaining while the safe haven yen was on the fall. The euro, usually a safe have, and the pound, usually a “risk†currency, did not make serious moves though, so it wasn’t a perfect “risk†environment.
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