Wednesday, March 17, 2010

On Tuesday, the Federal Reserve left its benchmark interest rate unchanged and reiterated that interest rates would remain low for “an extended period”. In its statement, it also
mentioned that inflation remains subdued, and that the weak employment situation seems to have stabilized. While this may sound rosy, the Fed did express concerns about housing and employer
reluctance to increase payrolls.

The tone of the statement suggests that while the Fed seems to have a plan as to how to begin reducing stimulus and returning interest rates to normal, it still is having trouble
deciding when to initiate the first rate hike. One obstacle it faces is the possibility it will kill the recovery if it hikes too soon. The other more important obstacle is inflation. Although by its
standards, inflation is low, there is a possibility that all of the liquidity that has been pumped into the financial system may trigger a spike in prices.

The overall dovish tone of the statement gave the go ahead for traders to continue to use the Dollar as a …