The last FOMC Meeting of the year resulted in no changes to policy, as expected. The same growth expectations, worries about the global slowdown and pledge about rates remained, with minor changes in the wording.Â
EUR/USD dipped to new lows under 1.3050 after the statement was released. It was waiting patiently for the event and as no dollar-weakening measures were announced, new low ground is tested.
The Federal Reserve left the pledge to keep interest rates at a low level until mid-2013. Yet again, one member, Charles L. Evans, voted against the decision. He wanted further easing.
Bernanke and his colleagues still see moderate growth in the coming quarters, while noting “Strains in global financial markets continue to pose significant downside risks to the economic outlookâ€.
The last part of the statement has the usual part:
The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.
This is by no means a hint for more QE. QE3 wasn’t hinted here. It just leaves room for anything that comes along.
The Fed continued its current program of reinvesting matured bonds, maintaining the same level of its balance sheet. It already said in the past that reducing the balance sheet is a tightening measure and requires a new decision. Operation Twist, announced in September, continues as usual.
The improvement seen in the US economy was the main reason for expecting no new easing measures, as detailed in the preview.
On the other hand, the deterioration in Europe could certainly reach the US and this was the main reason to expect new measures, or at least new measures in the last decision of the year.
Europe remains in the limelight. EUR/USD broke down to an 11 month low earlier in the day. A big bunch of negative headlines, including German rejection for an enhanced ESM fund eventually broke the camel’s back and sent the pair below 1.3145.
