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Fed Cautiously Optimistic about Recovery with Fiscal Support. USD Upside Limited as Accommodative Policy Remains in Place

The FOMC minutes for the January meeting revealed that policymakers were cautiously optimistic over the economic outlook. Meanwhile, it also dampened hopes of tapering. US dollar’s rebound has been driven by more upbeat economic data and rising yields. However, the Fed’s pledge to maintain an ultra accommodative policy should keep upside limited.

The members acknowledged that the economic outlook was “considerably stronger” than at the December meeting, after incorporating the effects of the Phase 4 fiscal stimulus passed in late December and an assumed stimulus bill in coming months. As noted in the minutes, “the stimulus provided by the p