A Wait-And-Watch Mode Ahead of FOMC Meeting

Edited By Barsha B. Baruah

The upcoming meeting is expected to dominate the financial markets this week

The market is expecting the Federal Reserve to announce changes on forward guidance as it gets ready to end its asset-purchase program. The two-day Federal Open Market Committee (FOMC) meeting concludes Wednesday and the economists are expecting the Fed to announce an additional sum of $10 billion reduction in its asset-purchase program to $10 billion in U.S. Treasurys and $5 billion in mortgage-backed securities, based on the momentum set in the beginning of the year. The Fed will release its policy statement and economic projections at 2PM Wednesday, followed by a press conference at 2 PM, where Fed Chairperson Janet Yellen will clarify the other aspects of the meeting.

What’s the buzz?

While the Fed is expected to maintain a slower and calculative outlook in the meeting, experts believe the two words, ‘considerable time’ could change the post meeting sentiments to a completely unexpected level.

Past tense

The disappointing jobs market report lately has created a pressure on the FOMC from so-called inflation hawks to reconsider the soon-to-raise interest rates. So, despite the encouraging economic data from last week showing improvements in consumer spending and confidence, it is perhaps not convincing enough for the FOMC to increase interest rates.

“We expect the FOMC to have a moderately hawkish tone at its 16-17 September meeting,” said Thomas Costerg at Standard Chartered. “The FOMC may update its exit principles, but there should be no surprises.” As published on most of the major financial dailies.

Along with the policy statement, the Fed will also release its latest Summary of Economic Projections, including economic forecasts from FOMC members through 2017.

Below is a glimpse of how US job market performed in the last 3 years

mc1-16sep2014

What’s in store?

Markets have been running on the hope of US dollar strengthening ahead of the expectation that US monetary policy will tighten up itself ahead of other developed countries. Right now it’s up to the Fed to decide the future of the dollar in sync with the tone of its statement, Janet Yellen’s press conference and the predictions made upon the economic and interest rate.

Meanwhile, in a press conference in June 2014, Yellen had described the recent inflation data as being on the “high side,” but identified the figures as “noisy” and that inflation is evolving along the central bank’s expectations. “We would not willingly see a prolonged period in which inflation persistently runs below our objective or above our objective, and that remains true,” Yellen added.

Below is how the inflation has hit the US in the last 3 years:

mc2-16sep2014

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