REUTERS - The U.S. Federal Reserve on Wednesday said it would keep buying $85 billion in bonds per month and gave no explicit indication that it was close to scaling back the program, despite intense market speculation it could soon start drawing it to a close.
KEY POINTS: * Describing the economy as expanding moderately, Fed officials cited further improvement in labor market conditions, and noted inflation had been running below the Fed's 2 percent long term goal. * They also reiterated that unemployment is still too high for their comfort, reinforcing their desire to keep buying assets until the outlook for jobs improves substantially, but offered a slightly more upbeat assessment of the balance of risks to the nation's growth. * In fresh quarterly projections, 14 of the 19 members of the Fed's policy-setting committee said they did not think it would be appropriate to raise rates until some time in 2015. * Three officials saw 2014 as the year that rates would lift off from near zero, versus four policymakers back in March. One official continued to anticipate the first rate hike in 2016 and one in 2013.
COMMENTS: DAN DORROW, HEAD OF RESEARCH, FAROS TRADING, STAMFORD, CONNECTICUT:
"What was surprising was the change in 2014 forecasts for unemployment. They've also said the downside risks to the outlook have reversed. So they are slightly more constructive on the economy, and the unemployment call would move forward the first fed funds rate hike, which is still way out there but has been moved forward slightly. This is going to push yields up. We're seeing them rise at the shorter end of the curve, too, so you'd expect the dollar to go higher, especially against the euro and sterling."
BUCKY HELLWIG, SENIOR VICE PRESIDENT AT BB&T WEALTH MANAGEMENT IN BIRMINGHAM, ALABAMA:
"I think still today the driving event will be what Ben Bernanke says, but with regard to the statement, it was a positive from the standpoint that they're going to continue to buy at the $85 billion level, but some of the statements in there suggest that things are setting up for a taper at some point, and that's kind of when the (stock) market went the other way.
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"The suggestion that economic activity has been expanding at a moderate pace and that labor markets show further improvements, I think market participants s are reading that the economy is improving perhaps enough to put in some curtailment of the purchases later on...The more optimistic outlook on the economy, it looks like traders view that as tapering being closer rather than farther in terms of the calendar."
ENRIQUE ALVAREZ, LATIN AMERICA STRATEGIST, IDEAGLOBAL, NEW YORK:
"The U.S. is seeing stronger growth and somewhat lower unemployment projections. This means that this view that THEY are going to move up the curtailment of asset purchases is still on the table, it is not completely removed.
"As long as that is on the table it guarantees that Latin America is going to continue to see volatility in the markets, and the defensive stance of carry trades in the currency market is going to remain intact."
MIKE KASTNER, HEAD OF FIXED INCOME AT HALYARD ASSET MANAGEMENT IN WHITE PLAINS, NEW YORK:
"The statement was a little more dovish in the comments than I thought it would be. Long-dated Treasuries sold off. That was the story of the old bond vigilantes saying if the statement is more dovish, then inflation is more likely to be a problem down the road so get in front of that now by selling the bond and increasing the inflation premium.
"We will get a better sense of the timing of the tapering during the press conference as to whether it might occur in the next couple of FOMC meetings or whether it's pushed out to later this year or next year.
"The Bullard vote was a little bit of a surprise. That's why I consider it to be a net dovish statement."
VASSILI SEREBRIAKOV, CURRENCY STRATEGIST, BNP PARIBAS, NEW YORK
"The markets are reacting to the more positive economic assessment in the statement, notably the comment that economic risks have diminished. I think it's being seen as a signal that the Fed is close to tapering. U.S. yields are higher and they're pushing the dollar higher as well against the other funding currencies such as the Japanese yen. Obviously we'll have to wait til the press conference to get any additional details on the tapering."
PARESH UPADHYAYA, HEAD OF CURRENCY STRATEGY, PIONEER INVESTMENTS, BOSTON
"It's hawkish. They talked about the labor market showing improvement and that the downside risks have diminished since autumn. That reflects the fact that the fiscal tightening has not hurt as much as they had feared. The forecasts are significant, too. Not only is their outlook for 2014 better but their unemployment call has the jobless rate possibly hitting 6.5 percent in 2014. Depending on what Bernanke adds later, I think we'll be off to the races when it comes to higher Treasury yields and a higher dollar, especially against the yen. And we should see a sell-off in risky assets."
RICK MECKLER, LIBERTYVIEW CAPITAL MANAGEMENT LLC, JERSEY CITY, NEW JERSEY
On the fall in stocks: "There's no change in the program. I would not be surprised to see a round-trip here where the first reaction is down because there's almost nothing that's going to change the ultimate move, which will eventually be to taper. What investors will need on the other side is just some evidence that's offset by economic growth. That's been missing lately."
TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:
"There were really no significant changes to the Fed statement, although they modestly improved their assessment of the labor market. Overall this was a net neutral statement and the meat of the market's reaction should come from the press conference."
IRA JERSEY, INTEREST RATE STRATEGIST, CREDIT SUISSE, NEW YORK:
"The statement disappointed a little, in that it made it sound like they are going to taper. They are not worried about the market's outlook for lower inflation, so they kind of ignored the TIPS market. Simultaneously they lowered their forecast for the unemployment rate a little bit, so in effect they may have pulled forward some people's expectations of a hike just a little bit. That's one of the reasons you are seeing the selloff in Treasuries that we are seeing, particularly in the belly of the curve."
RANDY FREDERICK, MANAGING DIRECTOR OF ACTIVE TRADING AND DERIVATIVES, CHARLES SCHWAB, AUSTIN, TEXAS:
"The interesting thing is that the VIX is lower when the market is lower. I don't think we saw anything that was surprising so far from the Fed and I don't really think that market was expecting anything new because you would really see institutions buying VIX puts and calls if they thought things would be uncertain. That wasn't the case. For now, it's nothing too surprising, but we would have to wait until Bernanke press conference."
TANWEER AKRAM, SENIOR ECONOMIST, ING, ATLANTA, GEORGIA:
"The statement is as expected in the sense that the FOMC acknowledged improvement in labor markets but acknowledged that the unemployment rate is still elevated and that fiscal policy is likely to restrain growth. It maintained its commitment to asset purchases conditional on the data. A bit different was there was a dovish vote by James Bullard stating the FOMC should be more accommodative in light of inflation undershooting the Fed's long-term target."
MARK LUSCHINI, CHIEF INVESTMENT STRATEGIST AT JANNEY MONTGOMERY SCOTT IN PHILADELPHIA:
"There's no great surprise, and this is something of a non-event statement. It didn't spook markets in terms of advancing notions of tapering, but it largely leans towards deferring that tapering until later this year. The fact that this is status quo is enough to put a little pressure on the market, largely because of the run-up we've seen over the past few days.
"It is interesting that Bullard voted to dissent against any altering of the policy, that bodes towards the idea that there will be tapering later this year."
MARKET REACTION:
STOCKS: U.S. stock indexes were modestly lower BONDS: U.S. bond prices dipped, particularly long-dated bonds FOREX: The dollar gained against the yen and euro
(Americas Economics and Markets Desk; +1-646 223-6300)