FOMC Review

Notes From The Statement

The January FOMC meeting passed as expected with the Fed maintaining rates and sounding rather cautious in their accompanying monetary policy statement. The Fed acknowledged that recent data has been weaker than desired and noted also the threats posed to the US economy by recent global and market developments. Again, these conclusions were as expected and if anything, brings the Fed’s assessment ¬†of the economic outlook closer to that of the market. ¬†Accordingly, market reaction to the meeting was to start pushing out expectations for the next rate-rise as well as expectations of the number of rate-rises to come this year.

The Fed’s inflation assessment noted that market measures of inflation compensation “declined further” since December whilst noting that “inflation is expected to remain low in the near term, in part because of further declines in energy prices”. However they do still see inflation rising to target in the medium term as “transitory effects” of energy price declines and import prices dissipate.

Of particular note was how the Fed’s assessed the risks to the outlooks for economic activity which are no longer seen as “balanced” as they were in December’ instead “the committee is closely monitoring global economic and financial developments and is assessing their implications for the labour market and inflation and for the balance of risks to the outlook”.

The Fed also made alterations to its statement of long-term strategy which is reconsidered in January each year noting that the Fed will be “concerned” if inflation “persistently” deviates from the 2% target.


The statement was in-line with broad Dovish expectations and as such we’ve seen continued USD selling today. The deal-breakers as ever are inflation and global-growth concerns. Elements to watch are Oil prices and developments regarding China. If Oil prices continue to tank, dragging equity markets with them and the Chinese picture deteriorates, the Fed’s outlook is likely to get more pessimistic and four further hikes this year would seem to be off the table. Obviously there is upside risk to this view also: correction and stability in these two risk factors could see the Fed continue with their projected course. For now the status quo remains intact, let’s see where we are closer to the March meeting.

Trade Ideas Update

USDJPY short trade (see “Ahead Of The FOMC”) not triggered but with BOJ coming up we could see a break of the 115.70s area, if BOJ refrain from action, where I will look to sell a retest as noted.