The Fed has been meeting and has kept its policy settings unchanged for the fourth consecutive time. The Fed’s stance was widely expected, clearly indicated rates would be lower for longer, at least through 2023. The vote was 8-2 in favor of the September FOMC statement.
The dollar underperformed against the G10 currencies on the Fed’s policy decision.
“The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved.” According to the FOMC statement.
However, two of the Fed officials voted against the action was Robert Kaplan. He expects that it will be appropriate to maintain the current target range until the Committee is confident that the economy has weathered recent events and is on track to achieve its maximum employment.
The FOMC highlighted that “The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”
Projections: The dot plot rate projections showed the revised forecasts now widen to 2023, and the median GDP, Unemployment rate, and the inflation forecast were revised higher from June projections.
Earlier in late August, the US FOMC Chair Powell stated that the FOMC adjusted its strategy for achieving its longer-run inflation goal of 2 percent by noting that it “seeks to achieve inflation that averages 2 percent over time”.
Coming back to the September FOMC meeting, the Committee highlighted the same “With inflation running persistently below this longer-run goal; the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time”.
Here are the gits of analysts’ reactions to the Fed’s meeting.:
The Danish bank said, “We think the meeting was a slight disappointment making it harder for the Federal Reserve to achieve its new inflation goal of 2% average inflation.”
Market reaction: The forex market reaction was bearish dollar against the G10 currencies. The pound and the Japanese yen outperform with 0.65% and 0.45%, while EUR was down by 0.30%.
However, dollar bids and erased overnight losses in the early Asia session. When writing this article, the dollar is trading higher across the board (EM and G10). ZAR down 0.6%, NOK by 0.50%, MXN by 0.35%. In G10 currencies, antipodeans lost 0.30% each, and the Euro further lost 0.40%.
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