Federal Reserve’s FOMC published its first meeting minutes to include the 3-year projections of the committee members regarding the GDP growth, consumer prices inflation and unemployment rate. While the average projection expectations didn’t differ greatly (except for the year 2008) from this year’s results, the uncertainty of the inflation projections spoke for itself — Fed is unsure of the impact the interest rates manipulations will have on the consumer prices growth.
The wide range for the next years inflation forecasts — 0.7% (range) for 2008 and 2009, 0.5% for 2010 — combined with big average forecast error ±1.0%, means that Fed knows little about the future of price indexes. Even a worse picture can be seen in the GDP forecasts range — 1.1% for 2008, 0.9% for 2009 and 0.5% for 2010 with an average forecast error between ±1.3% and ±1.4%.
As the uncertainty dwells among FOMC members, the markets decide that it is the sign for the further interest rates cutting. The U.S. 10-years treasury notes went north in price after the minutes release and the yield on those notes decreased below 4%, signaling for a possible interest rates cut by 50 basis points in the nearest future, while the EUR/USD rate on Forex reached its new historical maximum at 1.4854.
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