FOMC Brings Hikes Forward, RBNZ Holds

The Fed left its statement virtually unchanged and did not shed any new light on bond purchases. The US dollar slid after Bernanke's press conference but CAD was the top daily performer while JPY lagged. The RBNZ held rates and continued to warn about the strong NZD. The FOMC's balance of projections revealed that 2 members went from expecting a tightening in 2016 to 2014, which was somewhat hawkish. But markets reacted little because the outlook for 2013 was unchanged. For the trading implications of today's FOMC statement and projections in today's latest Intermarket Insights below.

The Fed held rates and did not announce QE3, as expected. We were focused on whether the Fed would alter its pledge to keep rates exceptionally low through 2014 or if other members would join Lacker in dissenting to that pledge. Neither outcome materialized. Instead, the FOMC statement continued to talk about moderate growth and slow improvements in unemployment.

The market was also looking for guidance about the end of Operation Twist but there was no change in language on the topic and Bernanke seemed comfortable with the scheduled June end of the program in his press conference. He was careful to note, however, that the Fed remains prepared to do more if required.

The updated Fed forecasts suggested a slightly better trajectory for employment, slightly higher inflation this year and slightly better growth this year with small downgrades for 2013 and 2014.

The market was choppy throughout but not overly volatile. The most decisive reaction was US dollar selling after Bernanke left the QE option on the table. The Fed appears comfortable with growth prospects and the lower range of its 2.4-2.9% growth estimate for 2012 is above the 2.3% market median.

Data earlier in the day didn't appear to phase the Fed. US March durable goods orders fell 4.2% compared to the -1.7% expected. Excluding transportation and other volatile components also left a disappointing result.

The RBNZ left rates at 2.50%, as expected. In his statement, Governor Bollard said inflation is expected to stay near the middle of the bank's target range. He added that if the exchange rate remains strong without anything else changing, the Bank would need to reassess the outlook for monetary policy. Last month, he said sustained strength in the New Zealand dollar would reduce the need for future increases in the OCR. The kiwi strengthened slightly after the decision.

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