Federal Reserve expectedly decided to once again keep interest rate that has been applied over the past nine years. But, USD surged against other major currencies.

Earlier today, Federal Reserve expectedly decided to once again keep interest rate that has been applied over the past nine years. However, a change in Fed statement has lifted US Dollar against other major currencies, especially Euro. So, what change we are looking into?

Fed

 

At Its Next Meeting

Fed quoted weak export and inflation as their reasons to maintain supper accomodative monetary policy, and left only a few trail of clues. Market had long predicted this, particularly due to some Fed members' public statement about the improper timing of rate hike at this moment.

Yet, there are 4 new words in the post-FOMC statement that shocked the market: at its next meeting. Here is the complete sentence, In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress — both realized and expected — toward its objectives of maximum employment and 2 percent inflation.

The surprise came from the explicitness of liftoff possibility in December. Some analysts immediately took this as a hawkish statement. As what Ian Sepherdson of Patheon Macroeconomics revealed to Business Insider, In short, then, the December hike now hinges on the next two employment reports. Some combination of payrolls, unemployment and wages signalling continued improvement will be enough; we’re leaving December as our base case, though it is by no means a done deal.

 

Not Yet Final

Nevertheless, market players are still in doubts over the probability of Fed rate in December. First of all, voting result from yesterday's meeting showed only one member left to support 0.25% rate hike, Jeffrey Lacker. Secondly, FOMC removed concern over global market volatility from their statement, but there is no guarantee that there won't be any turmoil like China stocks collapse again in the future, at least until next December.

Analysts from BNP Paribas, one of the most top-notch banks, claimed that Fed rate in December is still unattainable, even if its probability had increased after this latest FOMC. They added that Fed was just giving fuel to market expectations, while crucial economy indicators are in fact still weakening. In line with that view, Barclays analysts confirmed that they wouldn't change their outlook on rate hike to be carried out no sooner than March 2016, although they also admitted that FOMC statement was more hawkish than expected this time.

Additionally, Fed Fund Futures revealed that market expectations still choose 2016 as the nearest time for Fed to increase rate. They possibly want to check on job data first like unemployment rate, wage growth, and Non-Farm Payrolls. All data will be released by the US Bureau of Labor Statistics in the beginning of November and December 2015.