What should we take away from the Fed’s statement?
As expected by many economists and investors, the U.S. Federal Reserve adjusted the wording of its communication to the markets by removing the word "patient" from it, while leaving the key rate unchanged. At first blush, this change could imply that Fed members have a positive outlook on the economic outlook of the United States. Conversely, in the same statement, the Fed revised downward its inflation and GDP growth forecasts for 2016 and 2017, by referring to the negative impact of the strong greenback on the country’s exports.
Judging by the reactions of the markets, investors seemed to focus more on the revisions. Specifically, the U.S. dollar fell markedly against most of the major currencies while equity markets soared. Many have interpreted this statement as a sign that the Fed will maintain an accommodative monetary policy for a prolonged period of time. Ultimately, it will be interesting to analyze if this intervention will help curb the rise in the greenback.
