The Federal Reserve’s policy statement knocked 1 percent off the value of the dollar on Wednesday without even directly mentioning it.
The statement and updated economic forecasts Fed officials published after their meeting sent a clear message to markets: The greenback’s 24 percent surge since the end of June has complicated the Fed’s plans to tighten by holding down already too-low inflation and clouding the outlook for economic growth.
“It was powerful,” said Laura Rosner, a U.S. economist at BNP Paribas SA in New York. “We are learning how they respond and react to an exchange-rate shock.”
Here’s where investors read between the lines.
1. Policy makers expect to raise their benchmark interest rate more slowly than they had previously thought
The median estimate now pegs the federal funds rate at 0.625 percent at the end of this year, down from the 1.125 percent median in December. At the end of 2016, the median forecast sees the funds rate at 1.875 percent, down from 2.5 percent. And at the end of 2017, it’s 3.125 percent instead of 3.625 percent.
2. The committee mentioned exports for the first time since March 2009
Compare this sentence in the policy statement released Wednesday:”Business fixed investment is advancing, while the recovery the housing sector remains slow and export growth has weakened.”
With this, from the statement following their last meeting in January:”Business fixed investment is advancing, while the recovery in the housing sector remains slow.”
In January, exports fell from a year earlier for the first time since September 2009. That was information Fed officials didn’t have in their Jan. 27-28 gathering. In her press conference on Wednesday, Fed Chair Janet Yellen said “probably the strong dollar is one reason for that.”
A stronger U.S. currency makes American goods more expensive for consumers overseas.