(Reuters) - The Federal Reserve extended its support for a slowing U.S. economy on Wednesday, saying it will keep buying $85 billion in bonds per month for the time being.
KEY POINTS: * In announcing the widely expected decision, Fed officials nodded to a weaker growth outlook due in part to a fiscal fight in Washington that shuttered much of the government for 16 days earlier this month. * A rise in borrowing costs following hints from the central bank earlier in the year that it might soon start to ratchet back its monetary stimulus have also weighed on growth. * "Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months," the Fed's policy-setting Federal Open Market Committee said. "Fiscal policy is restraining economic growth."
DAVE RODA, REGIONAL CHIEF INVESTMENT OFFICER FOR WELLS FARGO PRIVATE BANK IN MIAMI:
"It was not outside expectations. The probability of any change in policy stance was low, the economic data hasn't been robust."
The tepid move in markets is "indicative that consensus was wrapped around there would be no action from the Fed. There was no big positioning among traders on either side, so no huge impact. Not only is the economic data not strong enough, but all we've done is push debt negotiations back for a few months, and that is uncertainty the Fed is certainly thinking about.
"We are constructive on stocks. Our target is 1,850-1,900 for the S&P at year end, but we haven't seen a correction in a long time. We would be buyers of any weakness."
BORIS SCHLOSSBERG, MANAGING DIRECTOR, BK ASSET MANAGEMENT, NEW YORK:
"The fact that that the Fed took out the statement ion financial market tightness to me seems quasi-hawkish. The Fed is essentially hinting at the fact that they may taper sooner rather than later. Before the market was expecting tapering in March and now it could very well be December. The dollar is gaining as a result of this."
BRIAN JACOBSEN, CHIEF PORTFOLIO STRATEGIST, WELLS FARGO FUNDS MANAGEMENT LLC, MENOMONEE FALLS, WISCONSIN:
"Brace yourself for a December taper. The economy is growing at a moderate pace and there are few signs that officials are worried that the shenanigans in D.C. would leave a lasting scar on the economy. The Fed was dismissive about how higher mortgage rates are affecting the housing recovery. They also removed the statement about their concerns regarding a deterioration in financial conditions. This sets the stage for an easy start to taper in December.
"Bernanke's swan song at the press conference in December could be a sentimental reflection on his tenure at the helm of the Fed. Like a father letting go of the seat of his child's bicycle as the child pedals off into the distance, Bernanke may start to taper slowly as a tear wells up in his eye."
KIT JUCKES, GLOBAL HEAD OF FX STRATEGY, SOCIETE GENERALE, LONDON:
"Fears about what happens as a result of higher bond yields have gone, but the housing market recovery has stalled. This is 'dovish' I suppose but I don't suppose there is a single economist, strategist, journalist, trader or barman who expected anything less dovish.
"The market therefore, sees this is in a slightly hawkish light and the dollar index rebound continues. Honestly, this is the most dovish CB (central bank) out there simply failing to surpass expectations. For choice I look for the dollar rebound to go a bit further, and long USD/CAD is my favorite way to express that, while receiving USD and EUR rates after a day of soft inflation numbers which will slowly filter down into folks' rate expectations in the coming days."
TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:
"It was much less dovish than was expected which is why we saw the reaction in markets. People braced for a statement that better reflected what was happening in D.C. as well as the soft data over the last several weeks. Bottom line, the Fed made very few changes to the statement overall. It is ironic and amusing that they removed the financial conditions tightening part of the statement given that they created that in the first place when they did not announce tapering at its meeting last month."
PAUL MONTAQUILA, VICE PRESIDENT, FIXED INCOME INVESTMENT OFFICER, BANK OF THE WEST'S CAPITAL MARKETS DIVISION, SAN FRANCISCO:
"The Fed has every reason to stay the course. The economic data we're getting and the government shutdown have given them the fodder necessary to remain with the purchases and the accommodative interest rate environment. It would take something dramatic from here, perhaps a much-better-than expected holiday season, for rates to go higher. We will be in this trading range for quite some time with 2.5 percent on the 10-year yield being the mean and a range of about 2.35 percent to 2.75 percent."
BRAD MCMILLAN, CHIEF INFORMATION OFFICER, COMMONWEALTH FINANCIAL, WALTHAM, MASSACHUSETTS:
"It was pretty much exactly what was expected, a continuation of existing policy. A bit of unexpected cheerfulness to my mind; I thought they might be a bit more downbeat on employment. Given the noted fiscal policy constraint on growth, though, they came out as noting improvements.
"No real changes here for the next couple of months, particularly given the comment that the bond purchase goals are explicitly to hold down mortgage rates, and the housing sector has ‘slowed somewhat in recent months.' Taper in my opinion off the table for the rest of the year.
On the downturn: "Buy the rumor sell the news. We saw a drop before the announcement, a tick back up, then a drop. Given the strong gains of the past couple of weeks, normal volatility at this point."
ANDRES GARCIA-AMAYA, GLOBAL MARKET STRATEGIST AT J.P. MORGAN FUNDS, IN NEW YORK, WITH $400 BILLION IN ASSETS UNDER MANAGEMENT:
"The big surprise would've been any change in the language or the policy. Overall I'm glad there wasn't anything crazy here; it would have had a major impact on the market had there been any kind of change, let alone tapering.
"Considering that the shutdown lasted longer than most people expected, it isn't surprising that the growth outlook deteriorated. But it seems clear that we don't have to worry about tapering for several months."
FRED DICKSON, CHIEF MARKET STRATEGIST, D.A. DAVIDSON & CO., LAKE OSWEGO, OREGON:
"It looks like there was no change either in tone, policy or a hint as to what the Fed may consider. So I would say the Fed statement came in as expected, no changes.
"Obviously, the Fed continues to cite weak economic data for continuation of the policy. I'd say there wasn't much (stock) market reaction after that, and that was what I was expecting.
"I think the market reacted to the Fed not signaling tapering over the three days ahead of the meeting, and today it's sort of digesting the news with little follow-through reaction."
CARY LEAHEY, SENIOR ADVISOR, DECISION ECONOMICS, NEW YORK:
"I had a hard time finding much of a change in the statement. Growth sagged some more in the third quarter and probably sagged in the fourth quarter so we won't get a clearer read on the economy until January. In addition, Fed Chair nominee Janet Yellen faces the rockiest nomination of any Fed chairman in history with one senator, Rand Paul, vowing to hold her nomination once it leaves the committee's jurisdiction and moves to the Senate floor so both the economy and politics are telling the Fed not to rock the boat for quite some time."
SEAN INCREMONA, SENIOR ECONOMIC ANALYST, 4CAST LTD, NEW YORK:
"There's nothing too surprising from the Fed here, we did see a little bit of moderation in the assessment on the economy, particularly housing where they noted the recovery slowed somewhat. This was a risk they had pointed out at the last meeting, which could be a result of higher rates. Elsewhere it doesn't look like they are primed to make any significant shifts in their policy stance, they are waiting for more information on the impact of the government shutdown and developments in the economy we saw even prior to that, the September data has been pretty unimpressive."
NEIL DUTTA, HEAD OF U.S. ECONOMICS, RENAISSANCE MACRO RESEARCH, NEW YORK:
"They did what everyone thought they would do. They acknowledged the underlying improvement in the economy despite fiscal tightening, the problem is because of the shutdown, any improvement with the data will be viewed with skepticism and any disappointing data will be pinned on the shutdown. That argues for a wait-and-see approach. This statement is not going to change anyone's expectations. March is the most likely for them to dial back on the QE program. The more important question in 2014 for the Fed is at what point is they will adjust their rate guidance."
RICK MECKLER, PRESIDENT OF HEDGE FUND LIBERTYVIEW CAPITAL MANAGEMENT LLC, JERSEY CITY, NEW JERSEY:
"I think (the Fed) they see there's some slight improvement in the economy. It's really what investors were really looking for, in the sense of no real action being taken, but continued monitoring. I think the market expected this quite a bit. So it's really not coming as a surprise to investors.
"Certainly that's very small volatility compared to the previous announcement. It's amazing how we've gone from so much focus on the last announcement to so little expectations for this announcement."
VASSILI SEREBRIAKOV, CURRENCY STRATEGIST, BNP PARIBAS, NEW YORK:
"The Fed is watching how the economy is evolving. From the statement, it is clear that it is too soon for the Fed to taper. Overall, the comments are consistent with current expectations for an early 2014 tapering.
"The reason that the dollar strengthened after the statement was that the market was short dollars before the meeting, and traders are just basically unwinding that position."
KRISHNA MEMANI, CHIEF INVESTMENT OFFICER, OPPENHEIMER FUNDS, NEW YORK:
"Until the economic data strengthens, and strengthens meaningfully, I think expectations for tapering are going to remain subdued. The likelihood of anything happening in December is modest. The Fed is far more concerned about the economy than the markets. If tapering would have a bad impact on the economy, the Fed would rather not do anything and deal with whatever issues may rise in capital markets."
OMER ESINER, CHIEF MARKET ANALYST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON D.C.:
"On balance, the Fed's statement was slightly less dovish than expected. What sticks out to me is that the Fed abandoned its previous statement about tightness in financial markets. I do not think this was hugely different than the statement from last month, but given the market positions over the last few weeks it leaves room for the dollar to appreciate. I do not expect a huge rally in the dollar, but this does shake out some of those shorts that accumulated over the last few weeks."
BRAD BECHTEL, MANAGING DIRECTOR, FAROS TRADING, STAMFORD, CONNECTICUT:
"It's in line with what people were expecting, so I don't think there will be any major position shifts based on today's announcement. The tone should remain risk-positive. All eyes will be on next week's payrolls report. Everyone has pushed their expectations out to the first quarter or beyond for the first Fed taper, and we'll have to see some positive momentum in the non-farm payrolls reports. You'll probably have to see two big prints."
ERIC STEIN, CO-DIRECTOR, GLOBAL INCOME GROUP, EATON VANCE INVESTMENT MANAGERS, BOSTON:
"It's much as expected. Maybe a touch more hawkish. Treasuries sold off a little bit. The yen is weaker; dollar broadly stronger against major currencies."
STOCKS: U.S. stock indexes were little changed
BONDS: U.S. bond prices lost some ground
FOREX: The dollar edged higher against the euro and the yen
(Americas Economics and Markets Desk; +1-646 223-6300)