The following is SEB Group’s first reaction to today’s FOMC policy decision.
“As widely expected, the Fed decided to scale back its bond-buying program for a second time by USD 10bn, evenly split between UST and MBS, to USD 65bn. Thus, a weak December jobs report and the recent turmoil in emerging markets did not rock the boat. A little bit surprising, perhaps, that EM was not even mentioned?
Be that as it may, the next taper by the same amount is likely coming in March, in our view. While the forward guidance on the fed funds rate was left unchanged today, the current 6.5 percent unemployment threshold may well be scrapped at the March meeting, simply because it is a good chance it is obsolete by then.
When comparing the current statement with the previous one, we note that growth “picked up in recent quarters” as opposed to “moderate” in the December statement. While other changes surely can be found, they were all small and insignificant. The committee continues to see growing underlying strength in the broader economy which is good news for real GDP growth since the extent of the fiscal restraint is diminishing at the same time. The New York Fed issued a statement too where the fixed-rate reverse repo facility was extended by another year. Finally, for the first time since June 2011, the decision was unanimous.”