THE TAKEAWAY: Fed releases September FOMC minutes > Economic growth to pickup in 2013, 2014, 2015; additional easing to boost labor market > USDJPY bullish
The Federal Reserve released the minutes from its September FOMC meeting today. The minutes revealed little of surprise, as the major market-moving news came immediately after the meeting with the Fed announcing that it will buy $40 billion of mortgage debt a month in a third round of quantitative easing, or QE3, and that it was extending its horizon for maintaining its key interest rate near zero until at least mid-2015.
The minutes revealed that all but one FOMC member had agreed that the outlook for economic activity and inflation and concerns over the slow pickup in labor market conditions warranted additional monetary easing. The Committee concluded that another round of accommodation was necessary to hopefully boost the labor market. Despite seeing “significant downside risks” to growth, the FOMC is anticipating economic growth to speed up in 2013, 2014 and 2015, while longer-term inflation is expected to remain stable.
Key points from the minutes are summarized as follows:
- Fed officials saw manageable bond-buying risks
- FOMC saw longer-term inflation expectations as stable
- FOMC predicted economic growth to speed up in 2013, 2014, 2015
- FOMC participants saw “persistent headwinds” in recovery, and said housing market is impeding recovery.
- FOMC participants saw “significant downside risks” to growth
- FOMC saw retail sales “somewhat stronger than expected”
- FOMC participants expected inflation to be 2% or less, with most seeing risks to inflation as balanced.
USDJPY 1-minute Chart: October 4, 2012
Chart created using Market Scope – Prepared by Tzu-Wen Chen
The U.S. dollar rallied against the Japanese yen, the alternative safe haven currency, after the minutes suggested a less dovish outlook for growth and inflation. At the time this report was written, the USDJPY pair had retraced slightly after climbing to a high of 78.49 yen to trade at 78.44 yen.
--- Written by Tzu-Wen Chen, DailyFX Research