Dollar slides ahead of Fed meeting outcome
The Federal Open Market Committee (FOMC), the monetary policy-making body of the Federal Reserve, is meeting for the second time in so many days to determine what actions, if any, to take to help America’s flagging economy.
Ben Bernanke and the Federal Reserve are largely anticipated to institute another round of Quantitative Easing (QE3) as a means to stimulating the U.S. economy. The U.S. stock market is expecting that the Fed will act and the U.S. dollar indicates the same expectation.
The dollar is off ahead of the announcement as QE is the act of “printing money” and pumping it into the economy:
As the dollar suffered from expectations for QE – which would be equal to printing money and diluting the value of the currency – the euro stayed near four-month highs against the U.S. currency, helped by the signs the euro zone may be starting to get on top of its debt troubles.
Expected Fed actions include an estimated $500 billion in purchases of long term treasury notes. A move designed to lower interest rates in hopes of stimulating borrowing and investment.
91% of Chief Financial Officers polled said their firms would not change their spending if QE3 was able to lower interest rates by as much as a full point indicating that interest rates are not the economic inhibitor the Fed believes.
Campbell Harvey, a finance professor at Duke’s Fuqua School of Busines, said that “there is stark evidence that QE3 would be a wasted effort.”
The dilution of the dollar would likely have further impact to every-day Americans. Everything from gas to heating fuel and groceries would become more expensive. As the government’s CPI inflation index doesn’t measure these items, no official inflation would be shown. Consumers will likely see their budgets squeezed from items the government sees fit to ignore.
The FOMC will hold a press conference today at 12:30am Eastern. The FOMC members will announce their decision at 2pm and chairman Ben Bernanke will hold his own conference at 2:30pm Eastern this afternoon.