Markets' reaction to Fed's announcement is quite positive with DOW spikes higher to 9917 before settling back. Dollar, on the other hand, spikes lower with the dollar index revisiting 75.89 key support level. Nevertheless, the greenback is somewhat drawing support from weakness in crude oil which dives through 70 again after unexpected rise in inventory. After all, it seems that dollar bears are hesitating for the moment and the greenback might continue to stay in range for some time first.
Fed left federal fund rates unchanged at 0-0.25% as widely expected and sounded optimistic on recovery. In the accompanying statement, Fed said the economy has "picked up following its severe downturn." The committee expects the current fiscal and monetary stimulus to support strengthening of growth and return to higher levels of resource utilization in context of price stability. Inflation is expected to remain subdued for some time.
The Fed pledged to continue to "employ a wide range of tools" to promote economic recovery and preserve price stability. Rates are 'warranted" at the current exceptionally low level for an "extended period". Fed said that it will "gradually slow the pace" of $1.45T purchase of agency mortgage-backed securities and agency debt and expects it to be completed by end of 2010 Q1. Purchases of $300 billion in Treasury securities will be completed by the end of October 2009.
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