"As long as the outlook remains solid and does not deviate dramatically from the path we believe it's on, I would expect the tapering of asset purchases to continue over the balance of the year"
- Dennis Lockhart, Atlanta Fed President
The Federal Reserve will keep its monetary policy accommodative until unemployment fall to around 6.5%. Wait, have we heard something similar from the BoE already?
After the release of highly-anticipated FOMC meeting minutes the U.S Dollar was trading just slightly higher against the single currency, with the EUR/USD pair moving to 1.3745. During the last policy meeting FOMC members thought the economy remained on track, ascribing disappointing jobs figures to bad weather conditions, as they have introduced another $10 billion cut to its monthly asset purchasing facility. The next meeting is scheduled on March 18/19, where policymakers are expected to introduce another cut of the QE. What is more important is the fact, the Fed is sticking to the U.K.-style forward guidance, saying despite the latest improvement the labour market is still far from being healthy, as much of the drop in the unemployment rate was dragged by the fact more Americans have dropped out of the labour force. In January, the key jobless rate hit 6.6%, moving closer to the 6.5% threshold, where the Fed will consider a first rate hike. However, the Fed is more forward-looking and tries to avoid similar mistakes done by their U.K. colleagues, saying the inflation rate should keep below the 2% official target to confirm the world's largest economy is ready for a first rate increase.
© Dukascopy Bank SA
© Dukascopy Bank SA