The FOMC concluded its two day meeting with the decision to keep its $85 billion a month asset purchase program unchanged. This means, the FOMC won’t start tapering this month. This news is likely to pull down the USD and pressure back up gold and silver prices.
The Fed decided to maintain its asset purchase program unchanged at this time:
“…the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. “
This decision is likely to pull back up the prices of gold and silver. Moreover, the high expectations for some sort of tapering could also lead to the weakening of USD.
Next, will be the view the press conference of the FOMC, in which Bernanke may refer to the recent FOMC decision and perhaps what is next for the FOMC. Here is a live coverage of the press conference.
The Fed has also updated its economic outlook: The inflation is expected to remain well below the Fed’s target in the next couple years. Moreover, the Fed expects the rate of unemployment will remain around 7% in 2013 and 2014. Until the rate will drop below 6.5%, the Fed is likely to maintain its current expanding monetary policy.
Here is the background for this decision:
The main issue behind this meeting was whether the FOMC will start tapering QE3 soon. Many expect the FOMC could start tapering by roughly $10 to $25 billion a month of its asset purchase program.
According to Google Trends, the sharp increase in search results for the term “tapering” suggest people more suspect the Fed may taper QE3 in the September meeting.
Some hold the progress of the U.S labor market as sufficient evidence for its improvement: The rate of unemployment tumbled down from 9.7% in early 2010 to 7.3% as of August 2013 – a 2.4 percentage point drop. This decline, however, is less impressive when we take into account the 1.5 percentage point decline in labor force participation rate.
In times of economic slowdown, this trend is expected, in which people give up of looking for jobs and go out of the labor force. If we were to assume today’s participation rate similar as at the beginning of 2010 – at 64.7%, then the rate of unemployment would be around 9%.
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