Market views on Fed behavior has moved back and forth quite dramatically in the last few weeks. We started out the year with the view that QE3 would continue for the indefinite future. This changed in February with the release of the Fed minutes which suggested that there was growing disparity inside the Fed on how much and how long QE3 would last. In fact, there was the impression that it could end much sooner than expected.
This new view was dashed with Fed Chairman Bernanke comments and further speeches by Janet Yellen who argued that the labor market was not providing any signs that would suggest that tightening is in the cards. Finally, there latest Fed minutes suggest that we are back to the original view at the beginning of the year that QE3 of $85 billion is still the prime policy. The idea of Fed tightening helped the dollar, but with current buying held constant at $85 billion there are new headwinds against the dollar.
Follow the Chairman, the rest is noise when it comes to the Fed.
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