Monex: Fed maintains monetary policy, doesn't change interest rates

Monex: Fed maintains monetary policy, doesn't change interest rates

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This is a commentary by Ima Sammani, Market Analyst at Monex Europe, on tonight's FOMC policy decision.
While markets were not expecting any fireworks from the Federal Reserve, they still saw some sparklers tonight as the Fed announced qualitative guidance on its Quantitative Easing programme. Temporary dollar swap lines and the Repurchase Facility are extended through September 2021, and the key interest rate remains unchanged. The dollar rallied, gold slipped and the treasury yield curve steepened.
The Fed increased purchases of Treasury securities by at least $80bn per month and of agency mortgage-backed securities by at least $40bn per month, “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals”. The Fed predicts that unemployment will fall to 5% by the end of next year and 4.2% by the end of 2022, striking a more optimistic tone than previously. This is likely due to the latest vaccine developments and perhaps glimmers of hope around a stimulus deal. The Fed is also more optimistic on the short and medium term growth outlook, with the outlook for 2021 and 2022 both being upgraded by 0.2% to 4.2% and 3.2% respectively. The 2020 real GDP outlook changed from -3.7% to -2.4%. Especially the change in the short term outlook may seem hopeful to some, acknowledging the latest resurgence in virus case count and resulting restrictions. 
The key message today is that although policy remains accommodative, with near-zero rates and QE continuing for some time, the ball is basically back in Congress’ court. The size and scope of the QE programme were left untouched tonight as the Fed likely prefers to wait for further clarity over the fiscal outlook before taking additional measures.
USD rises vs EUR and JPY after the Fed refrained from ramping up QE but committed to keep policy accommodative