The minutes from the Federal Open Market Committee (FOMC) meeting of Oct 23-24, revealed Federal Reserve officials generally gave positive reviews to their latest round of bond-buying saying it was helping to spur financial markets.
FED members considered that the decision to buy $40 billion of mortgage-backed securities each month was effective in lowering long-term interest rates, and in turn helped to support spending and aided a recovering housing market.
The members agreed that their overall assessments of the economic outlook were little changed, and “all but one member judged that maintaining the current, highly accommodative stance of monetary policy was warranted in order to foster a stronger economic recovery in a context of price stability”.
Regarding whether the Federal Reserve would extend the Operation Twist which is due to expire in December, the minutes stated: “Looking ahead, a number of participants indicated that additional asset purchases would likely be appropriate next year after the conclusion of the maturity extension program in order to achieve a substantial improvement in the labor market”. The split of FED official opinion is not sitting well with the stock market. The DOW finished down 185 points today.
The minutes also showed continued interest with a new approach to the Fed’s communications policy, as “many” members favored the use of economic variables in their guidance, though “a number” favored qualitative triggers. However, the minutes indicated that the Fed would need to resolve a number of practical issues before deciding whether to adopt quantitative thresholds to communicate its thinking about the timing of the initial increase in the federal funds rate.
At the moment, the FED is relying on a calendar date, saying it expects to keep rates near zero until mid-2015.
The EUR has drifted lower throughout the afternoon, after reaching a high just below 1.2775. I would not expect to see much movement overnight. EUR range is expected to be 1.2710-1.2780.
Further reading: All you need to know about the fiscal cliff