Federal Reserve to Publicly Forecast Likely Interest Rate Direction

Soon to be a thing of the past will be the days when analysts and investors would study the wording of Federal Reserve press releases, or weigh the nuance, demeanor and carriage of Ben Bernanke, the head of the U.S. central bank, for clues and hints of the direction that the Fed intends to take. In the future, they’re just going to tell you.

Yesterday’s release of the most recent FOMC minutes was relatively uneventful, except for the news that the Fed will soon begin to publish their forecasts for interest rate direction, given their view on the likely future global economic environment. Mr. Bernanke has long pushed for greater transparency in the Fed’s thinking and dealings and this is seen as a long-sought after victory on his part. For market participants, it’s a welcome change of events which will begin following this month’s FOMC meeting.

According to the meeting minutes, each of the Fed members will provide their own interest rate forecast through the end of this year and beyond; already the Fed has said they would maintain exceptionally low rates through the middle of next year. If a rise in interest rates is foreseen, the FOMC members will announce their predictions, as well. The thinking behind the policy shift is that it could provide a boost to the U.S. economy, driving longer term interest rates lower once it’s been adjudged that interest rates will likely be held at the lower range for a period beyond markets’ original expectations.

Furthermore, the minutes revealed that some FOMC members might consider additional quantitative easing measures, believing that economic conditions might warrant the additional accommodation.

The Fed news gave a lift to higher-risk currencies, with the Euro-Dollar seeing a nearly 0.9% gain yesterday. Today, the EUR/USD pair is lower, at 1.3033, and sentiment among OpenBook traders is predominantly bearish. Trader babczyk, who continues to hold one long position in the pair, closed several others yesterday, with an average gain of more than 7%. Trader NMarijus also continues to hold open his two long positions in the Euro-Dollar in anticipation of a rally. While some of his many copiers appear to be getting a bit anxious over the long-held trades, the majority continues to have faith in his trading abilities and offer encouragement.