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U.S. Dollar at 4 Year High after FOMC Rate Statement Indicates QE’s End in October

U.S. Dollar at 4 Year High after FOMC Rate Statement Indicates QE’s End in October

September 18th 2014   Guest post by Jay Hawk at Orbex
 
The Greenback continued higher this morning, after the release of the FOMC Rate Statement. Although Fed monetary policy officials stated they will keep the Fed Funds rate at the current level for a “considerable time”, they indicated that asset purchases would probably be phased out next month, “if incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective.”

The Greenback reacted positively to the news, with the U.S. Dollar Index hitting a high of 84.78, which is the highest the benchmark index has been since July of 2010. It is currently up +0.3700 or +0.44 percent on the day at 84.7150.

The statement also listed a number of measures to be undertaken before the Fed would start raising interest rates, stating that, “The Committee expects to cease or commence phasing out reinvestments after it begins increasing the target range for the federal funds rate; the timing will depend on how economic and financial conditions and the economic outlook evolve.”

Significantly, two Fed officials — Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser — dissented on the policy statement. The statement noted that these two officials “believed that the continued strengthening of the real economy, improved outlook for labor utilization and for general price stability, and continued signs of financial market excess, will likely warrant an earlier reduction in monetary accommodation than is suggested by the Committee’s stated forward guidance. President Plosser objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for “a considerable time after the asset purchase program ends,” because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals.”

The Fed’s monetary policy statement also noted that there was little change in the Unemployment Rate and that a number of economic indicators suggest there remains a “significant underutilization of labor resources”. Nevertheless, according to the Fed’s Economic Projections, many members believe the Fed may raise rates as early as the end of this year, with policymakers’ estimates for the Fed Funds rate raised from 1.12 percent to 1.375 percent by the end of 2015.


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