Federal Reserve kept the Fed funds rate unchanged and did not announce a third round of quantitative easing (QE3)
Today’s statement from the Bernanke-led central bank was very similar to the November FOMC statement. One meaningful difference was in the first paragraph that discusses recent developments in the economy: “Information received since the Federal Open Market Committee met in November suggests that the economy has been expanding moderately, notwithstanding some apparent slowing in global growth. While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated.”
Another difference was in the second paragraph, where the Fed previously stated that “There are significant downside risks to the economic outlook, including strains in global financial markets.” This time, it said that “Strains in global financial markets continue to pose significant downside risks to the economic outlook.”
Once again, Chicago Fed President Charles Evans was the lone dissenting vote, as he “supported additional policy accommodation at this time.”
The initial reaction in financial markets to the Fed announcement included:
Gold futures extended their losses, falling $12.90 to $1,655.30 per ounce
U.S. Dollar Index extended its gains, by 0.7% to 80.10
The euro slid 1.0% to 1.3063 against the dollar
Dow Jones Industrial Average (DJIA) pared its gains but remained higher by 41.70 at 12,063.09
Bonds rallied, with the yield on the 10-year note falling 2 percentage points to 1.99%
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