Forex Investment and Currency Trading

The Fed has slashed its target for the fed funds rate to a range of 0.00-0.25%, and has begun to shift its focus towards quantitative easing measures and other unorthodox techniques. The latest cut essentially serves to reunite the target for the fed funds rate with where the effective fed funds rate has been operating over the span of the past several months. And with the fed funds rate now essentially as low as it can go, it is only natural that the Fed has begun to pursue other means of adding stimulus to the economy. The Fed now talks explicitly about its intention to “employ all available tools” and to “consider ways of using its balance sheet” (hints about quantitative easing), in addition to explicit statements about buying further MBS and agency debt, and musing about beginning to buy longer-dated Treasuries in an effort to flatten the yield curve and add even more stimulus to the economy. Some believes that the Fed will indeed make good on its various commitments, and will begin to either purchase or target Treasury yields, and engage in other activities designed to maximize economic stimulus. Inflation concerns are not entirely irrelevant, but are unlikely to rear their heads in what is fundamentally a deflationary economic environment. In addition, the Fed can always very rapidly unwind its liquidity injections should economic conditions improve and inflation begins to threaten. Given the clear commitment by the Fed to maintain a very low fed funds rate for an extended period of time, one does not look for the fed funds rate to begin rising until 2010.