U.S. and European efforts to resolve the Ukraine crisis seem to be finding their stride in recent days. U.S. Secretary of Defense Ash Carter ended months of “will they won’t they?” by announcing earlier this week that the U.S. would be sending heavy weaponry into Eastern Europe, and late last week EU leaders declared that EU sanctions against Russia would remain in place through the end of 2016, quelling months of anxiety around whether EU resolve on sanctions would hold.
The first move is the hardest.
The Federal Reserve defied expectations and did not reduce, or taper, its purchases of Treasury and MBS securities today, leaving them at $85 billion per month. The economic projections accompanying the statement suggest a significant divergence of views about the prospects for recovery and the outlook for interest rates. It suggests little concern about a rapidly increasing balance sheet. What comes next depends on the data, a message the Fed has been sending for some time. Markets reacted sharply, with stocks and commodities spiking, while bond yields and the dollar fell on the news that policy would remain easy for longer. Good for U.S. financial conditions, but if you were looking for clarity, today probably didn’t provide it.