FOMC as Expected, but Only a Dove Cries

The FOMC statement contained no surprises and no change in asset purchases.

The statement recognized somewhat better growth in Q3 (better than H1).  It said growth strengthened somewhat while previously it said growth remained slow.  Weakness in the labor market continued to be noted, but despite this and the depressed housing market conditions, it noted spending had improved.  Yesterday's auto sales report bodes will for headline Oct retail sales, suggesting that some of the consumption momentum in Q3 is carrying over into the start of Q4. 

One of the bright spots is business investment.  This though is not in plant, but equipment and software.  However, business investment accounts for about a fifth of the economy and simply too small of an engine to drive the world's largest economy very far or very fast.  

Perhaps there were some who really thought the Fed would announce new asset purchases.  In the aftermath of the statement, the dollar has come off.  Some suggested that BOJ intervention was preemptive, thinking the Fed would announce asset purchases and the dollar yen would crash in response.  However, this does not pass the smell test.  First, $100 bln is a great deal to spend on a contingent risk.  

Second, it still does not seem that knowing asset purchases helps inform short term fx moves.  Sterling remains well above levels that prevailed when the BOE announced in early Oct that it would resume its asset purchases.  The yen strengthened while the BOJ is pursuing QE and it increased its asset purchases program by JPY5 trillion the session before it intervened on Oct 31.  Swiss had little luck with its QE in curbing its currency strength.  And don't forget how the dollar rallied when the Fed announced its second round of asset purchases in early Nov 2010.  

All three hawks from the last meeting fell into line.  However, Evans dissented from the dovish side, favoring an further ease of policy.   This is a surprise, but the significance of it is not clear.