So we are on the cusp of the eagerly-anticipated decision from the Fed.
The FOMC will issue an official statement regarding monetary policy at 7pm BST, encapsulating the committee members’ outlook for the economy and hopefully with some information regarding the future of the current stimulus package.
I have long been of the view that tapering is not imminent, which aligns with the current consensus for this meeting, where no change is widely expected. There is more uncertainty around what Fed Chairman Ben Bernanke will say in his press conference, though, which is scheduled to begin half an hour after the FOMC decision.
I’m hoping for some clarity over the Fed’s intentions for the future of its QE scheme in terms of timing, but Bernanke may not be so explicit. I would expect him to provide some kind commitment to long-term low interest rates regardless of the issue of tapering.
We will also get to look at the Fed’s forecasts for key areas such as growth, unemployment and inflation, and these might allow future intentions to be inferred. Any lowering in their projections for the economy might point to deferred tapering. No change to the forecasts or improvements will point to tapering coming sooner rather than later. There is a risk that if the Fed’s intentions are not crystal clear that we could see volatility return.
As we approach the Fed decision, nerves have begun to creep in and stocks have dipped in New York, despite some decent numbers from Adobe Systems and FedEx, both of whom managed to exceed expectations with their latest quarterly earnings. With less than half an hour to the decision, the Dow was down 25 points or 0.16%.