FOREX TRADING

Fed to Maintain Low Yields for Extended Period

The Fed holds rates policy unchanged as expected and reaffirms promise to keep rates exceptionally low for an “extended period”. The Fed says that economic activity continues to pick up and labor market deterioration is abating.

Housing has shown signs of improvement and spending is expanding moderately but remains constrained. Business’s still reluctant to hire new workers. Financial market conditions more supportive of economic growth. Economic activity likely to remain weak for a time but market forces will help growth.

The Fed continues see inflation remaining subdued for some time helped by substantial resource slack which will dampen cost pressures. The purchase of longer-term securities will be completed by end of Q1.Funds provided under TALF will continue to be scaled back in 2010. Most special liquidity facilities will expire February 1st due to improvements in financial markets. This sounds like the start of an exit strategy from special liquidity measures. The Fed vote was unanimous.

The fact that the Fed sees continuing improvement in the US economy and will allow liquidity measures to expire in early 2010 is a mild positive for the USD. The fact that the Fed expects inflation pressures to remain subdued may dampen speculation that the Fed will hike rates earlier than expected.

By Michael J. Malpede

Easy Forex

Michael J. Malpede is Chief Market Analyst with Easy-Forex® and has previously been featured on Bloomberg TV, Bloomberg radio, Reuters, MarketWatch, Wall Street Journal, Chicago Tribune, Chicago Sun Times, Toronto Star and Nikkei press. In analyzing the markets, he draws from 29 years of Foreign Exchange Research as a Foreign Exchange Analyst.

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