Just as the US Federal Reserve began its two day long monetary policy meeting, a report on stronger-than-expected inflation came that revealed that US dollar has gained strength as compared to other major currencies.
It is not expected that the Fed will make any adjustments in the current policy. Also, the federal funds rate is expected to remain close to zero and monthly stimulus bond buying is to be brought back another USD 10 billion to USD 35 billion, and would be wound up some time later this year.
However, it is expected that the forecast on economic growth, inflation and interest rates by Fed officials for next three years could possibly change the picture of when federal funds rate might begin to rise.
Moreover, the Federal Open Market Committee, which sets the policies, has constantly pointed towards the first increase in rate, since it was brought down to what it is now in late 2008, to take place at some time during next year’s second half.
However, some analysts believe that the unanimous Fed view might move this timing a little forward, provided a strong inflation and some impetus in the job market.
According to the data released yesterday, the consumer price index (CPI) in May increased over the year, that put inflation close to the target range of Fed. Also, the report says that Euro immediately fell from USD 1.3570 to USD 1.3540.
Jim O’Sullivan, chief US economist at High Frequency Economics, said, “The (inflation) data will clearly discourage Fed officials from making their forward guidance any more dovish than it is already.”