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FOMC remains concerned about employment growth

Written by Sam Coxhead on January 27th, 2011.      0 comments

8:45 AM (NZT) Just released was the FOMC statement from the US Federal Reserve. As completely expected they left the cash rate unchanged. The lack of reduction in the unemployment rate is still of large concern obviously.
 
Copied below is the first paragraph of the statement, which seems to be the most pertinent in my view.
 
“Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in household spendingpicked up late last year, but remainsconstrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, while investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed.Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.”
 
Overnight the Bank of England Monetary Policy Committee Meeting minutes were released. Interestingly there was a small shift in the votes. For the last six months or so of the eight voting members one voted for a cut in rates , six voted to remain unchanged and one voted for a hike, citing the obvious inflationary pressure. This last meeting saw two votes in favour of hiking the cash rate. Given the 3.7% 3rdquarter inflation number , this seems justified. Complicating matters is the shockingly weak -.5% GDP number from yesterday. Negative growth and very high inflation are not a good mix and the BoE have their challenges ahead. The GBP got a boost from the 2ndvote gunning for a hike, and the interest rate market has taken back half the moves lower in yield that it made yesterday after the GDP number.
 
          Last 24 hours trade
  Current level Pre-FOMC Chge FOMC   Low High
NZD/USD 0.7663 0.7673 -0.1%   0.7648 0.7701
AUD/USD 0.9942 0.9950 -0.1%   0.9930 0.9998
NZD/AUD 0.7710 0.7715 -0.1%   0.7688 0.7718
AUD/NZD 1.2970 1.2961 0.1%   1.2956 1.3007
NZD/GBP 0.4831 0.4835 -0.1%   0.4820 0.4869
NZD/EUR 0.5605 0.5615 -0.2%   0.5597 0.5625
NZD/JPY 63.27 63.30 0.0%   62.94 63.32
NZD/CAD 0.7633 0.7644 -0.1%   0.7624 0.7668 
 

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