Fed Sees Waning Benefits of QE Program

DailyFX

Talking Points:

-FOMC officials favor tapering QE in ‘measured steps’

-Fed officials saw waning benefits from QE program

-FOMC participants expect inflation to rise towards the 2% target

-FOMC sees ‘moderate’ risks to financial stability

Minutes from the December FOMC meeting where the Fed decided to reduce asset purchases by $10B showed a slightly more hawkish Fed as FOMC participants were stated as losing favor with QE3 as its benefits were seen as ‘waning.’ Despite recent pressure on prices in the U.S., FOMC members remain upbeat about inflation returning to the 2% target.

Although FOMC participants are losing favor with the asset purchase program, it is important to note that the Fed has not put forth a taper timeline. If data temporarily weakens, the Fed can very well delay tapering for that period. Nevertheless, these minutes are a turning point for the Federal Reserve and may be representative of the Fed moving forward into 2014 with Dr. Janet Yellen.

USD/JPY (5-Minute Chart)

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Fed_Sees_Waning_Benefits_of_QE_Program_body_Picture_1.png, Fed Sees Waning Benefits of QE Program

Source: FXCM Marketscope

US equities were little unchanged following the release, but Treasury yields edged up slightly with 10yr yields moving above 3.0% for the second time today. The greenback saw a slight uptick against the majors, but most gains were short lived. Volatility continues to remain low as we approach some key data in the coming 48 hours. The Bank of England and European Central Bank Rate decisions are tomorrow and Non-Farm Payrolls will be released Friday morning.

Gregory Marks, DailyFX Research Team

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