Forex Flash: Fed does not have the tools to overcome sequestration – UBS

Yesterday, Fed Chairman Bernanke warned about the economic costs of political brinkmanship – “in particular, repeated episodes where Congress is unable to reach an agreement and adjustments take effect automatically, which could have the potential to unravel confidence, notes Research Analyst Gareth Berry at UBS. Again he recommended replacing the upcoming sequester with a smaller package introduced more gradually and then backloaded further out to compensate.

Bernanke warned the Fed does not have tools, which are powerful enough to overcome this year's fiscal contraction. As things stand, the program of automatic spending cuts is still due to take effect tomorrow, leaving just one day for negotiations.