本文发表在 rolia.net 枫下论坛Summary: The FOMC cut rates by 50bps as was widely expected (Fed funds futures actually slightly favoured a 75bps cut prior to the meeting). The statement was dovish, but then how could it be otherwise considering the deteriorating economic backdrop? Compared with the statement published following the coordinated rate cut earlier this month, there was little change to the overall economic assessment (“the pace of activity appears to have slowed markedly”), although the FOMC added some colour by pointing to weakening consumer spending and business investment and the slowdown in foreign markets.
The inflation rhetoric was dovish, with the remark that “inflation has been high” from earlier this month removed, to be replaced with the forecast that inflation would move into line with levels “consistent with price stability”. The Fed did remove the comment that the upside risks to inflation had been reduced, but this may simply have been because they felt that was obvious.
One noteworthy element was the fourth paragraph, in which the FOMC remarked that policy actions, including today’s, should “help over time” to improve credit conditions and stabilize the economy. Given how low rates are, some might interpret this to be the FOMC saying “we think we’ve done enough” in terms of conventional easing. That may explain why equities fell following the announcement and the USD strengthened (although to be fair that could just as easily reflect disappointment the Fed didn’t cut 75bps). If that was a takeaway by some, we doubt it’s accurate. The Fed has shown it is willing to roll out the entire armory (and even design new weapons) to tackle this crisis. Consequently, one certainly cannot rule out further easing ahead. Indeed, "downside risks to growth remain".
As for the USD, the decision was fully priced in and should not have much of an impact. If anything, now that the event risk is past, the USD may be able to recover some ground. However, this will depend partly on the equity market’s ability to hold onto its recent gains.更多精彩文章及讨论，请光临枫下论坛 rolia.net
The inflation rhetoric was dovish, with the remark that “inflation has been high” from earlier this month removed, to be replaced with the forecast that inflation would move into line with levels “consistent with price stability”. The Fed did remove the comment that the upside risks to inflation had been reduced, but this may simply have been because they felt that was obvious.
One noteworthy element was the fourth paragraph, in which the FOMC remarked that policy actions, including today’s, should “help over time” to improve credit conditions and stabilize the economy. Given how low rates are, some might interpret this to be the FOMC saying “we think we’ve done enough” in terms of conventional easing. That may explain why equities fell following the announcement and the USD strengthened (although to be fair that could just as easily reflect disappointment the Fed didn’t cut 75bps). If that was a takeaway by some, we doubt it’s accurate. The Fed has shown it is willing to roll out the entire armory (and even design new weapons) to tackle this crisis. Consequently, one certainly cannot rule out further easing ahead. Indeed, "downside risks to growth remain".
As for the USD, the decision was fully priced in and should not have much of an impact. If anything, now that the event risk is past, the USD may be able to recover some ground. However, this will depend partly on the equity market’s ability to hold onto its recent gains.更多精彩文章及讨论，请光临枫下论坛 rolia.net