FOMC Minutes Cause Carry Trade Rallies to Pause as Fed Indicates No QE Expansion, Wea

The release of the minutes from the Federal Reserve’s June meeting have left the markets on edge, as rallies in FX carry trades and equities have paused amidst changes to growth and inflation forecasts. Furthermore, central bankers generally expressed doubts that expanding their quantitative easing program would have much of an impact, indicating that traders should not expect increased Treasury purchases anytime soon.

The Federal Reserve’s forecasts contained may revisions, some good, some bad. Inflation forecasts were revised slightly higher, suggesting that the central bank doesn’t anticipate deflation becoming an issue, while GDP projections were revised up:

[B]2009 GDP:[/B] -1.5% to -1.0% from -2.0% to -1.3% in April
[B]2010 GDP: [/B]2.1% to 3.3% from 2.0% to 3.0% in April
[B]2011 GDP: [/B]3.8% to 4.6% from 3.5% to 4.8% in April

However, the labor market outlook became increasingly bleak:

[B]2009 Unemployment Rate:[/B] 9.8% to 10.1% from 9.2% to 9.6% in April
[B]2010 Unemployment Rate:[/B] 9.5% to 9.8% from 9.0% to 9.5% in April
[B]2011 Unemployment Rate: [/B]8.4% to 8.8% from 7.7% to 8.5% in April.

[I]Source: Federal Reserve[/I]