QE Ends – Fed bullish on employment, not worried about

“Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate” – is quite hawkish from a usually dovish Fed. The considerable time phrase regarding rates remained basically unchanged.

USD strengthens across the board —

Hawkish Highlights

1. “Solid job growth” and “diminishing underutlization” are key bullish statements.
2. Inflation has declined somewhat, but :”survey-based measures of longer-term inflation expectations have remained stable”
3. Dovish dissenter, contrary to two hawkish ones last time.
4. No mention of global worries.
5. No mention of a possibility of a new bond buying program (QE4).

Here is the opening remark from the statement, emphasis mine:

Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee’s longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.

Market reaction

The dollar is clearly stronger.

• EUR/USD loses support, forms H&S pattern
• GBP/USD finds support at 1.60.
• USD/JPY breaks 108.35 top.
• AUD/USD falls from false breakout, still in high range
• NZD/USD drops below 0.78 as RBNZ signals end of tightening cycle, Fed hawkishness
• Canadian dollar putting up a fight amid Fed hawkishness

Background and Video

The Federal Reserve was expected to end the Quantitative Easing program, that ran at $15 billion of bond buys per month after the last taper. The focus is on 3 parts in the statement: “considerable time” regarding rates, “significant underutilization” regarding employment and the view on inflation. There is no press conference nor Fed forecasts this time.

Despite Bullard’s suggestion to end QE, the improving conditions among other reasons pointed to the end of QE3 after over 2 years in action. In the larger scheme of things, QE is ending end after 6 years.

What’s next? Here is a quick Fed Preview: 4 things to look out for

Follow a live coverage of the Fed decision with Valeria Bednarik and myself here:

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More:

• EUR/USD: Is a Dovish FOMC Already Priced In? – BTMU
• Did US Treasury Secretary Lew hint of a strong GDP number

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