The Federal Reserve is sketching out plans to prevent an abrupt contraction in its massive balance sheet next year, when some $500 billion in bonds expire and risk disrupting markets and the U.S. economic recovery.
Our prompt assertion in June that the forward view within the SEP was more important than media headlines pointing to an imminent policy tightening were lost even more recently when the San Francisco Fed posted its paper on public expectations of policy.
Regardless of the outcome of the Fed meeting, USDJPY is likely to see substantial volatility. After surging to a new six-year high above 107.00 last week, rates have consolidated in a tight 55-pip range for the last four days.
With QE nearly finished the Fed now has to outline their plans going forward. Will there continue to be reinvestment of the QE bonds that roll off, what many expect or will market conditions decide that.
Lira weakness since the Federal Reserve signaled U.S. interest rates could rise faster than anticipated is exposing Turkey’s economic vulnerability amid concern the central bank may need to cut borrowing costs further to spur growth.