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FOMC Minutes: All about strong USD as Fed trimmed US growth forecast; No faith on global recovery

FXStreet (San Francisco) - The Federal Reserves cut its US real GDP growth projection for second half of the year amid US Dollar high levels "particularly against the euro, the yen, and the pound sterling" according to the latest FOMC minutes. Feb members are also concerned about global slowdown as a major risk.

Fed is concerned about consumer spending and USD strength and how it could be affecting exports and growth and, accordingly, the central bank trimmed its 2H real GDP expectations "primarily because of a somewhat weaker near-term outlook for consumer spending. The staff's medium-term forecast for real GDP was also revised down a little, reflecting a higher projected path for the foreign exchange value of the dollar along with slightly smaller projected gains for home prices."

The FOMC also affirmed that the “considerable time” language "could be misunderstood as a commitment rather than as data dependent." However it remains as an elapse of time between the end of the QE and the its first rate hike.

Participants commented the possibility to revamp forward guidance as several members "thought that the current forward guidance regarding the federal funds rate suggested a longer period before liftoff, and perhaps also a more gradual increase in the federal funds rate thereafter, than they believed was likely to be appropriate given economic and financial conditions."

Reactions were USD down with the EUR/USD jumping above 1.2700, GBP/USD up to 1.6130 and USD/JPY losing previous gains to 108.00. Stocks accelerates while oil is trading down and the gold is recovering previous prices.

Other quotes:

In their view, the costs of downside shocks to the economy would be larger than those of upside shocks because, in current circumstances, it would be less problematic to remove accommodation quickly, if doing so becomes necessary, than to add accommodation. A number of participants also noted that changes to the forward guidance might be misinterpreted as a signal of a fundamental shift in the stance of policy that could result in an unintended tightening of financial conditions.

Inflation had been running below the Committee's longer-run objective, and the readings on consumer prices over the intermeeting period were somewhat softer than during the preceding four months, in part because of declining energy prices. Most participants anticipated that inflation would move gradually back toward its objective over the medium term.

Labor market conditions continued to improve over the intermeeting period. Although the unemployment rate was little changed, participants variously cited positive readings from other indicators, including a decline in longer-term unemployment, the low level of new claims for unemployment insurance, the rise in job openings, and survey reports of increased hiring plans and job availability.

During participants' discussion of prospects for economic activity abroad, they commented on a number of uncertainties and risks attending the outlook. Over the intermeeting period, the foreign exchange value of the dollar had appreciated, particularly against the euro, the yen, and the pound sterling.

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