Saturday September 19, 2015 - 10:53:11 GMT
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What Now From The Fed?
John M. Bland
Yellen Throws A Curve
Even through Chair Yellen downplayed the results of its September policy meeting, she announced changes to policy that blindsided the markets. Up until now, the focus of Fed policy was clearly on job creation and average earnings. After announcing no change in policy as the markets were expecting, Yellen indicated that a primary aim of policy is now to lift inflation to its medium term target of two percent. She said that 2% is not a ceiling but a target, The Fed would like to see inflation on either side of that figure. The core PCE deflator (Fed's target) is running at 1.2% yr/yr, down from a yearly peak in March of 1.4%. The point is that the 2.0% target is unlikely to be reached anytime soon. Another new element injected into its policy considerations was concern about how a U.S. rate hike might impact the stability of overseas markets. Bottom-line, the outlook for the timing of a Fed policy lift-off has suddenly become a lot more murky.
Forex Market Developments
It is interesting that Chair Yellen injected USD strength as a factor influencing its policy decision-making. She injected it now even though the EURUSD lows were set back in March of this year. The central bank has no control over forex policy, but it sent a signal that it does not favor a stronger USD by implying that additional USD strength could defer future rate hikes by the central bank. Equity markets are still trying to decide whether to respond positively to additional policy ease or to fret about a slowing economy.
The upcoming week is an active time for major economic data.
-- Monday, September 21, JP- Holiday, US- Existing Home Sales.
-- Tuesday September 22, JP- Holiday, US- Richmond Fed Index
-- Wednesday September 23, JP- Holiday, Global flash PMIs, CA- Retail Sales,
-- Thursday September 24, DE- IFO Survey, US- Durable Goods, New Homes Sales
-- Friday September 25, JP- CPI, US- GDP, flash Service PMI, final University of Michigan Survey
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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