• FOMC changes language to say that policy will return inflation to 2%.
  • December statement’s goal was “near” the 2% objective.
  • Powell’s acknowledgement of economic damage from the China virus briefly stirs markets.

Certainty is a rare commodity in finance and economics but today’s unanimous FOMC decision was about as close as markets are likely to come.

The Fed governors reaffirmed that the current rate of 1.50% to 1.75% was appropriate for the economy and best suited for its employment and inflation mandates for the second meeting in a row.  Nothing else was expected.

Chairman’s Powell comment that the Corona virus outbreak in China would probably have an economic impact there and globally sent the dollar down about 15 points against the euro at one point but by the end of the news conference its was back at the starting line of 1.1005.

Equities lost almost all of their gains with the Dow finishing up just 11.60 points after having been ahead by more than 100.

Treasury yields ended the day lower with the 2-year generic losing 5 basis points to 1.41% and the 10-year shedding 7 to 1.58%. Yields have been on a long slide for more than a year after the 10-year reached 3.25% in October and November 2018 and then dropped to 1.50% last August. The five year low in this benchmark rate was 1.32% in July 2016.

The FOMC statement was essentially unchanged from the December 11th meeting.  The description of household spending was said to be rising at a “strong” pace in December and at a “moderate” rate today. 

The committee also altered the language relating to the 2% inflation target.  The December statement used the standard Fed wording that policy was designed to bring inflation “near” its objective.  This month’s language said that policy was appropriate for “inflation returning” to the 2% target. 

Reuters

It’s a small change but one intended to reinforce the perception that the inflation goal remains a serious Fed consideration despite the near decade of failure to bring about higher prices.

The characterization of the US economy was unchanged with the one exception noted above.

“The labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a moderate pace, business fixed investment and exports remain weak.”

Mr. Powell said that China is a key player in the global economy, but that its financial system has had a problem with high levels of debt and specifically debt of business and state owned enterprises. China's authorities have tried to get that under control. That is one of the reasons the Chinese and global economies have slowed,

But the most descriptive comment on the governors’ outlook was delivered by Chairman Powell in response to a question on trade uncertainty.

“It hasn't gone away,” he said. “There's a bit of a wait-and-see attitude, among our contacts, is this going to be sustained?"

That comment could stand for the entirety of FOMC policy. 

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!


Latest Forex Analysis

Editors’ Picks

EUR/USD chops around amid end-of-month flows, ahead of Trump

EUR/USD is battling 1.11, close to the two-month highs amid choppy trading. Hopes for a fiscal boost in Europe and mixed satisfactory data have supported the currency pair. , Sino-American tensions are rising and investors await President Trump's China announcement.

EUR/USD News

GBP/USD advances amid US dollar weakness, shrugging off concerns

GBP/USD is trading above 1.23, edging higher amid US dollar weakness and Britain's gradual reopening. Intensifying Sino-American tensions and the Brexit impasse are ignored. 

GBP/USD News

Cryptocurrencies: $348M in matured derivatives boost the market

Futures and options contracts' expiration brings a wave of volatility to the crypto market. Ethereum takes advantage and attacks resistances in the market dominance chart, Bitcoin goes back. Ripple disappoints despite regaining the third place in market capitalization.

Read more

Canada's economy falls by 8.2% annualized in Q1, better than expected, USD/CAD shakes

The Canadian economy squeezed by an annualized rate of 8.2% in the first quarter of 2020, better than -10% expected. Quarterly, Gross Domestic Product (GDP) squeezed by 2.1%. Most of the downfall occurred in March, with a drop of 7.2%, better than 8.5% projected. 

Read more

WTI drops 4% and eyes $32 mark amid risk-off, weakening demand

The selling pressure around WTI (July futures on Nymex) accelerates following the break below the 33 level, as bears now target the 32 support zone heading into the key US macro data and US President Donald Trump’s response to the Hong Kong issue.

Oil News

Forex Majors

Cryptocurrencies

Signatures