If the Fed increases their inflation and lowers their unemployment projections, the case for QE3 weakens significantly. As a result, we don’t expect the Fed or Bernanke to make it crystal clear that QE3 is necessary – the door is open but no one is ready to walk through it. At the end of the day, Federal Reserve officials are still very divided on monetary policy and given the level of market expectations, this means there is scope for a squeeze higher in the U.S. dollar after the FOMC announcement.
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