Fed Does Nothing, Says Less and Dollar Advances

The Federal Reserve defied expectations and took no new action nor altered its guidance in terms of how long rates will remain exceptionally low (late 2014).  The dollar rallied on the news initially, but with the ECB meeting in about 17 hours, significant new positioning is unlikely.  

                                 

The FOMC downgraded its assessment of the economy, which is hardly surprising.  But the statement is generally unremarkable and essentially the same as last month's statement.    The more somber assessment coupled with the its declared willingness to provide additional accommodation as needed keeps the door more than a little ajar for further action.  This will reinforce the focus on Bernanke's speech at Jackson Hole, where in 2010 he provided a strong indication that QE2 was coming.                                                     

Lacker's dissent over the late 2014 guidance is largely immaterial and will not stand in the way of additional Fed action or pushing out the date as many had expected as early as next month.  By the mid-Sept FOMC meeting the Fed will have two more employment data to digest and any actions by the ECB that could address a headwind that the Fed has identified.