New York Session – January 25, 2012 4:23 PM

The U.S. dollar tumbled after the Fed surprised markets by significantly extending their low rate pledge to late-2014 from the prior mid-2013. Lacker was the sole dissenter as he preferred to drop the time specific rate pledge as many investors were anticipating the FOMC would do amid interest rate forecasts. Projections were released by Fed members showing that 11 of the 17 participants expect rates to be at or below 1% in 2014 indicating that at or below 1% is what the Fed means when it says “exceptionally low levels”. With the current target at 0-25bps, we note that there is scope for small rate increases that would still result in “exceptionally low levels”. The FOMC statement said it expects growth to be modest and long-term inflation to remain stable. The Committee reiterated “significant downside risks” and reduced its 2012 growth forecast to 2.2-2.7% from the 2.5-2.9% forecast released in November. Full text »

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