"As we transition from Bernanke to Yellen, she's in a pretty good place in terms of holding together the center of the committee. It should be relatively easy to hold together a pretty wide consensus."
- Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ
As it was widely expected the Federal Open Market Committee decided to cut the size of its monthly asset-purchases to $65 billion and left the forward guidance unchanged. The Fed will be now purchasing a total $30 billion in mortgage backed securities and $35 billion in government bonds in order to keep interest rates low and stimulate growth of the world's largest economy. Additionally, the overnight interest rate was also on hold– at 0%, the level that has been kept unchanged December 2008. The Fed's current balance sheet has already reached $4 trillion, the figure that raises concerns about causing an asset price bubble, and the latest announcement bolsters the case it will be only rising as policymakers are still adding accommodation intended to support growth, only at a slower pace. The FOMC cited improved economic conditions and stronger labour market, while also noted the latest data were mixed. For the first time since 2011, the decision was backed by all FOMC members and they also pointed out next month the pace of purchases will be reduced as well.
Even though a move was expected by a vast majority of analysts, stocks plunged after the announcement. EUR/USD, however, remained almost unchanged. On a hourly chart the pair moved between the lines of a triangle pattern, and despite a sharp drop to 1.36, the pair was still trading in pattern's boundaries.
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