FOMC Monetary Policy: Yellen Sings, Markets Dance

Article by Investazor.com

This week a highly anticipated FOMC Press Conference took place, which was practically the first one for the newly appointed FED Chairman, Janet Yellen. The analysts and the media were expecting some guidance, which would shift from a forward guidance to a qualitative guidance. But first, let’s have a quick recap of the changes that happened with FED monetary policy since the beginning of the tapering.

In December 2013, the Federal Reserve had decided to start trimming the monthly monetary stimulus with 10 billion dollars, making it 75 billion dollars instead of the previous 85 billion. Based on its reaction, the capital markets took the news as a good for them, and the indexes rose after the tapering decision was made public. EURUSD was kind of volatile and directionless, but with an edge towards the appreciation of the US dollar.

January followed and a very tricky mix of data from the US labor market was published. The NFP indicator was very disappointing while the unemployment rate dropped from 7% to 6.7%, very close to the official threshold of 6.5%. However, the tapering continued and another 10 billion were cut, leaving only 65 billion dollars to be “injected” in the markets. Back then, Bernanke calmed the investors saying that the interest rates will remain low even if the unemployment rate would go below the official threshold of 6.5% and blamed the moody weather for the disastrous NFP. The American stock markets fell and the US dollar did not feel good in front of the EUR.

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