Yesterday the Federal Reserve lowered the benchmark interest rate from 3.00% to 2.25% to help the banking institutions during the times of global financial turmoil, but will the investors’ expectations for the further cuts be satisfied?
The release of the FOMC minutes for January 29/30 meeting today gave traders more insight about the Fed’s vision and strategy. Dollar started to lose its positions right after the release and shortly reversed its daily gain against euro.
Today, the Federal Reserve System decreased the national benchmark interest rate by 0.75% — from 4.25% down to 3.50%. This was an emergent move to stimulate the financial liquidity amidst the tumbling stock markets.
The U.S. Federal Open Market Committee lowered its interest rate for open market operations by 25 basis points to 4.25%, while the discount rate for central bank to banks type of lending lending was also cut by 0.25% to 4.75%.
Little time remains before today’s FOMC meeting, which will decide the future target interest rate for the U.S. banks. Dollar gained a some weight against euro on some marginal expectations that Federal Reserve will cut rates by just 25 basis points instead of 50 points predicted by the current futures rate.
Dollar slid to its new historical bottom rate against euro hitting 1.4967 on EUR/USD. Missing the marvelous 1.5000 pint by about 30 pips, EUR/USD retraced by 150 points back as the Forex traders consolidated their profits on the rally. Another week without any supporting for dollar may probably break this resistance.
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.
Federal Reserve Chairman Ben Bernanke spoke on Fed’s communications at Annual Monetary Conference today. In contrast to his predecessors that praised a secretive atmosphere of FOMC’s decisions, Bernanke said that transparency and more detailed information will help markets to understands monetary policy better. In this context he announced about a new communications strategy of the Federal Reserve.