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Wednesday, October 8, 2014

Strong Dollar Worried the FOMC

Concerns for a strengthening U.S. dollar and weakening economies abroad led members of the Federal Open Market Committee to cut the group’s forecast for economic growth and inflation, according to just-released minutes from the September 16-17, 2014 meeting. The minutes noted a sentiment that growth “might be slower than … expected if foreign economic growth came in weaker than anticipated.”

The minutes also revealed that when the Fed starts to raise interest rates, the move will be more aggressive than what the markets currently forecast. However, the FOMC does wants to avoid credit market tightening as a result.

The minutes shed light on how the Fed will normalize monetary policy by allowing short-term interest rates to rise and reducing its portfolio of long-term securities. Of note, “The [FOMC] intends to reduce the Federal Reserve's securities holdings in a gradual and predictable manner primarily by ceasing to reinvest repayments of principal on securities held.”

The markets took this news favorably; the DJIA grew 150 points in the minutes following the release.

Read the full release.

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