The latest Federal Reserve Open Market Committee statement and projections have instilled some confidence in the US markets.  Although not significantly different from FOMC’s January 25^th projections, the good news for investors is that the US economy is not faltering despite the continuing Euro Zone crisis and fears of an overall global slowdown. FOMC has increased the US GPD growth forecast from January 25^th projections of 2.2%-2.7%, to 2.4%-2.9% range.  Unemployment forecast over the next three years has also been revised slightly downwards. On the other hand, Inflation forecasts till 2014 have been revised upwards.  FOMC’s press statement mentions that “Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable”.

Another continuing problem which the FOMC has recognized is the realty sector. Latest housing sales report by the US Census Bureau show around 320K new homes sales annually (24^th April) with very small deviations during the past year. Although it is assuring to see sales above the recession levels witnessed during 2009-2010, the FOMC admits room for improvement in this sector. 

Policy wise, the Federal Reserve has initiated no changes and targeted interest rate is scheduled to remain at the current levels till 2014. To the dismay of some investors, the Federal Reserve did not mention any immediate plans for QE3 (third round of quantitative easing), However, the Federal Reserve has reiterated its intention to “maintain a highly accommodative stance for monetary policy”.

The effects of FOMC projections and statements are likely to have a minimal impact on the overall strength of the US dollar although the US dollar traded on a two week low today with major currencies; quite possibly reflecting some disappointment at the FOMC’s commitment to maintain the current low interest rates despite rising inflationary pressure. The latest FOMC projections and policy stance reflects a guarded optimism about the US economy. Although the economy is once again growing, recovery has been shaky at best and structural problems, especially in realty and manufacturing, remain. Unemployment still remains above a desirable level and the continuing Euro Zone crisis compounded with slowing growth in China and India worry investors that recovery is still fragile and very reversible.