Fed Lowers Growth Forecast for US Economy |
At a meeting yesterday, the US Federal Reserve’s Federal Open Market Committee (FOMC) decided to leave the base interest rate unchanged at 0.25%. However, the FOMC lowered its forecast on the country’s GDP growth for 2011 and subsequent years. The unemployment forecast was also revised downward; FOMC members are not expecting the unemployment level to get down to 7% until 2014. Despite prognoses more pessimistic than those from the September 20-21 meeting earlier this year, it was noted that economic growth accelerated slightly in the second half of the year, while per capita expenditures and capital investments are growing. The committee said that it will stick to the stimulus measures it adopted in its last meeting, but does not yet see reason for additional economic stimulus.
Only one out of the ten FOMC committee members defended the necessity for a new round of quantitative easing – head of the Federal Reserve Bank of Chicago Charles Evans (the only member who voted against the Fed’s current policy).
RoyalMaxBrokers analysts noted that the lack of additional economic stimulus measures promised by the Fed lent support to the American currency: immediately after the publication of the FOMC’s comments, the Euro lost over 60 points, bringing the EUR/USD pair to 1.3700 – 1.3720.
Today, November 3, marks the start of the G-20 summit, where world leaders will discuss global economic issues; the most important part of the discussions will be dedicated to the Euro zone’s debt crisis.
According to comments from French President Nicholas Sarkozy and German Chancellor Angela Merkel, they are regarding the referendum put forward in Greece as a vote for whether or not the country will remain in the Euro zone. Sarkozy said that the already-approved sixth aid package for Greece, worth over 8 billion Euro, cannot be issued to the Greek government without a positive decision on the plan of anti-crisis measures. Therefore, RoyalMaxBrokers experts explain, if there is going to be a referendum, it needs to be held as soon as possible, perhaps even as early as December 4-5 of this year.
Following Fed Chairman Ben Bernanke’s statements yesterday, European Central Bank Head Mario Draghi is scheduled to speak today at 5:30PM (Moscow Time). Keeping with tradition, Draghi will speak 45 minutes after the bank announces the next refinancing rate at 4:45PM (Moscow Time).
In trading on the COMEX, the most actively traded gold futures for December delivery rose $17.80, or 1%, to reach $1729.60/oz.
Gold quotes rose throughout the day on expectations of positive remarks from the Federal Open Market Committee. When the comments were published, it turned out that the fact that the committee refrained from taking additional economic stimulus measures lent support to the US dollar and put pressure on the price of gold as an alternative asset. Subsequently however, the likelihood of additional economic stimulus measures in future quarters amid modestly pessimistic predictions for GDP growth and the promise to continue a super-soft monetary policy (the Fed affirmed its intentions to hold the interest rate at 0.25% at least until mid-2013) supported gold’s position.
In trading on the NYMEX, light sweet crude oil futures for December delivery were up 32 cents, or 0.4%, to $92.51 per barrel. Futures reached a high of $93.79 at the start of the session. Brent oil futures on the ICE were up 4 cents to $109.58 per barrel.
Oil prices rose only slightly since the growth in the beginning of the day was cancelled out by data released on US crude oil reserves, which increased by 1.8 million barrels (they were predicted to increase by 1.0 million); this put a damper on investors’ optimism.
Nevertheless, oil futures rose after three days of slipping, as labor market data from ADP showed that the number of new jobs rose by 110,000 in October. This gave a positive signal with regards to restoration of economic growth in the US, which is the world’s largest oil consumer.
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