The FOMC statement was little changed from July and maintained existing forward guidance that interest rates will stay low for a “considerable time after the asset purchase program ends”, while the central tendency projection for interest rates in December 2015 was raised by 25bps to 1.375% and Fisher joined Plosser in dissenting.
On currencies, the price action in the USD post-FOMC was intriguing, notes Australia and New Zealand Banking Group (ANZ).
“The price action was strong, and fits with our pre-existing views. We expect the USD to strengthen against most currencies going forward (except the CNY, and perhaps the EUR medium term). The trigger for the move presumably is the shift in the dots,” ANZ adds.
“Our forecast has been for the FOMC to hike next March. We don’t think market expectations are that early – most client feedback suggests mid-year, or even later, is where expectations are centred. Part of the currency moves last night was probably this expectation being shifted forward,” ANZ projects.
“The price action itself also potentially sends an important signal. The currency moves in response to the Fed were significant on any measure. And yet the Fed seems to have tried to maintain quite a dovish tone. As such, it seems increasingly clear that expecting currencies to handle some small hikes in the fed funds rate, better than currencies handled the taper (tantrums) last year, is misguided,” ANZ argues.