Tomorrow’s FOMC meeting is not expected to rock the boat. In the post-meeting statement the key issue to keep an eye on is the Fed’s forward guidance on its asset purchases for any signs that tapering is off, and not just on hold.
Given the recent fiscal drama on Capitol Hill, the vast majority of Fed officials are probably content that they didn’t start to scale back the Fed’s asset purchases at the September meeting. And given the increased uncertainty triggered by the government shutdown and debt ceiling fight, the FOMC is unlikely to start tapering now. The post-meeting FOMC statement is likely to reflect the increased uncertainty over the near-term outlook stemming from fiscal policy.
A key question is whether the FOMC will decide to make its forward guidance on its asset purchases more neutral. As we believe that tapering is on hold, not off, the Fed is tomorrow expected to indicate a preference for more evidence on the economy before adjusting its asset purchases. However, if the committee changes the phrase “… in judging when to moderate the pace of asset purchases …” to something like “… in determining the appropriate future pace of asset purchases …” this would suggest a more dovish policy stance than earlier indicated.
We do not expect any changes to the Fed’s forward guidance on the fed funds rate at this juncture.
For now, we still expect the tapering of QE to start at the January 2014 FOMC meeting, although we acknowledge that a move later rather than sooner is more likely.
Nordea