Fed Ups Growth Forecasts, Dollar Slide Continues

The Federal Reserve’s monetary policy announced failed to stem the dollar’s slide. The greenback traded lower against most of the major currencies with the only exceptions being the Canadian dollar and Swiss Franc, which rallied on the back of short-covering. On balance, the outcome of the FOMC meeting was less dovish. The central bank left interest rates unchanged, dialed up their expectations for growth, and put some specific numbers around their Treasury and mortgage-backed securities purchases. They didn’t extend the maturity of asset purchases which was widely anticipated and the decision to be less aggressive is supported by Fed Chairman Powell’s view that the economy should perform strongly in the second half of 2021 thanks to the vaccine. The greenback jumped in response but the rally lost its sizzle when he made it clear that they will continue buying bonds until there is substantial progress made on their goals. They will also give ample warning before tapering bond purchases and if needed, have the flexibility to provide more accommodation. The main takeaway is that while the Fed has been swayed by vaccine optimism, it will be a long time before they act on those views and start to unwind stimulus – hence the continuation of dollar weakness.

Dollar, Money, Cash Money, Business, Currency, Finances

Image Source: Pixabay

Meanwhile, consumer spending was significantly weaker than expected, falling -1.1% in November. Spending in October was revised lower as well, putting retail sales down slightly versus the small increase previously reported. Restaurants, department stores, and car dealerships suffered the most but purchases of clothing and furniture also fell. Online spending was strong but not strong enough to offset weakness elsewhere. Between rising jobless claims, surging virus cases, and new restrictions that limited mobility last month, US shoppers are spending less. According to a survey by the National Retail Federation and Prosper Insights & Analytics, Americans spent 14% less on holiday purchases between Black Friday and Cyber Monday this year compared to last. Unfortunately, less spending on holiday gifts is trend that is a likely to persist into December posing a big problem for fourth-quarter growth. Widespread vaccine distribution is on its way but until that happens the possibility of more economic pain explains the Fed’s cautiousness today.

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