Federal Reserve Turns Slightly Dovish, Keeps Rates Unchanged At 5.25%

No surprise, the Federal Reserve kept rates at the 5.25 percent benchmark in today’s widely anticipated decision. What has changed? The previous sentiment to higher inflationary pressures and further rate hikes seems to have dissipated as policy makers are potentially looking towards a more dovish outlook.

Although US central bankers noted that inflationary pressures loom as the economy seems supported, they conceded to the fact that price growth is likely to moderate in the coming months. That simple change alerted markets to a plausible rate cut some time during the year and helped in softening the US dollar in New York session trading. Even less surprising was the fact that Chairman Ben Bernanke attempted to mix the sentiment by noting that the economy is expanding at a healthy rate and that further decisions will be broadly contingent on upcoming economic data. Realistically, today’s decision all but confirms what the overall consensus has been expecting and pricing in: that a rate cut is imminent as the world’s largest economy continues to drudge along at a relatively stable pace. Recent reports have showed that housing sector weakness is starting to creep into consumer spending patterns as manufacturing remains just shy of contractionary conditions. Ultimately, the sentiment is likely to keep weighted pressure on the dollar ahead of the weekend with little in the schedule to offer any short term reprieve. Focus will likely be placed on several speeches by Fed policy makers in the next two days, although they are not expected to offer significant clarity of today’s decision.