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Fed Leaves Rates At 0.25%; Maintains Pace Of Tapering

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US Federal Reserve chief, Janet Yellen, has just finished chairing her first Federal Open Markets Committee (FOMC) meeting. As anticipated the Board of Governors of the Federal Reserve have elected to leave US interest rates unchanged at 0.25%.

There was never any real expectation that the Fed would consider moving interest rates at this meeting. There had however been speculation that the FOMC would alter the pace of their bond buying program.

In March the Fed purchased $35bn of US Treasuries and $30bn of Mortgage Backed Securities as part of it’s stimulus program. Now that the US economy is picking up the Fed has been reducing the magnitude of these monthly bond purchases. Market expectations today were that the Fed would reduce next months overall open market bond buying from $65bn to $55bn as it ‘tapers’ off this stimulus program. The Fed has just announce that it will purchase $30bn of Treasuries and $25bn of Mortgage Backed Securities next month. This is in line with market projections and puts the Fed on course to fully exit it’s bond purchase activity by Q4 this year.

The Feds accompanying statement contained the following announcement “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” This statement officially breaks the FOMC’s commitment to tie it’s future monetary policy actions to economic metrics, thus enabling the Fed to maintain it’s loose monetary stance despite falling unemployment.

The US Dollar reacted positively and swiftly to this unlinking of the Feds actions to the base economic data. The announcement precipitated an immediate 70 point sell off in the EURUSD, taking out both a key support line and breaking out lower from the well formed symmetrical triangle that was keeping the pair contained.

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