FOMC said it will dial back the USD 85b in monthly bond purchases by USD 10b to USD 75b per month, starting January. The purchases will then consist of USD 40b in treasuries and USD 35b in MBS. Fed chairman Bernanke said in the post meeting press conference that the "modest" reduction in pace of asset purchase reflected "cumulative progress and an improved outlook for the job market". He noted that the decision was "intended to keep the level of accommodation the same overall and to push the economy forward" and stressed that Fed is committed to bring inflation back to target. And, in the future, Bernanke said "if we're making progress in terms of inflation and continued job gains, then I imagine we'll continue to do, probably at each meeting, a measured reduction". He's confident that "by the time we complete this process, I think it's very likely that we'll easily pass the hurdle of a substantial improvement in the outlook for the labor market." Meanwhile, FOMC also emphasized that interest rates will stay low "well past the time that the unemployment rate declines below 6.5 percent", in particular if inflation continues to run below the 2% target.
Also, Fed released new economic projections overnight.
- Regarding interest rates, the majority of FOMC officials, 12 out of 17, expected the first hike in 2015. Two expected the first hike in 2014 and three expected the first hike in 2016.
- Unemployment rate is projected to be at 5.8-6.1% at the end of 2015, 5.3-5.8% at the end of 2016. That's a downward revision from prior projection of 5.9-6.2% at the end of 2015, and 5.4-5.9% at the end of 2016.
- GDP is projected to grow 2.8-3.2% in 2014, 3-3.4% in 2015, 2.5-3.2% in 2016. That compared to prior projection of 2.9-3.1% in 2014, 3-3.5% in 2015, 2.5-3.3% in 2016.
- PCE is projected to be at 1.4-1.6% in 2014, 1.5-2.0% in 2015, 1.7-2.0% in 2016. That compared to prior projection of 1.3-1.8% in 2014, 1.6-2.0% in 2015, 1.7-2.0% in 2016.
There was some volatility in dollar after the announcement but the dollar ended up sharply higher. Meanwhile, stocks also responded positively on the generally improved growth and employment outlook. The pledge to keep rates low well past 6.5% unemployment also gave investors some confidence. DOW closed at another record high of 16167.97 but S&P 500 somewhat lagged behind. Long term yields rose mildly be stay below recent high.
On the data front, New Zealand GDP rose much more than expected by 1.4% qoq in Q3. The data shot AUD/NZD down. Japan all industry index, swiss trade balance, Eurozone current account, UK retail sales will be released later today. From US, jobless claims, Philly Fed survey, existing home sales and leading indicators will be featured.