The Fed's FOMC Meeting Ends Wednesday - Here's What We Expect Them To Say
No one expects the Fed to announce a change in interest rates or its $85 billion per month asset purchase plan.
However, economists expect the language of the statement to be tweaked thanks to economic developments since the January FOMC meeting.
Here's UBS's Drew Matus:
Specifically, we see two changes as likely in the statement: First, we would look for the phrase that “the Committee continues to see downside risks to the economic outlook” to be revised to explicitly note the fiscal drag from the sequester or to be eliminated outright. Secondly, we would look for the FOMC to cut the phrase that “If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of...securities, and employ its other policy tools as appropriate...” Given recent improvements in the data flow there is much to be gained from acknowledging the better economic environment and distancing the FOMC from the promise of never-ending QE.
High Frequency Economics' Jim O'Sullivan generally agrees with Matus:
Officials will have to acknowledge a pick-up in growth in Q1 after exaggerated weakness in Q4, and they may tweak the wording on QE3 slightly, but the end result will likely be no deviation from current policies and no hint that a scaling down in the pace of easing is imminent. The main reason for continued easing: The unemployment rate remains “elevated.”
Like Matus, JP Morgan's Michael Feroli believes the Fed will have to address the negative impact of the sequester. As such he thinks this could send a confusing message given the surprisingly strong Q1 data so far. Here's Feroli:
The combination of the statement and the Committee economic forecasts (both released at 2pm) may send mixed signals: on the one hand the statement will likely note the improved tone of recent economic data, on the other hand the forecast for growth this year may be revised down a touch as Committee participants incorporate the sequester into their outlook.
At 2:30 PM ET, Chairman Bernanke will be giving a press conference. Economists expect him to address plans to end easy monetary policy.
Here's Feroli:
In the post-meeting press conference the Chairman may make note of continued monitoring of the potential costs of asset purchases, though we do not expect those remarks will be substantially different from ones made after the December meeting. Finally, the Chairman may make reference to deliberations regarding the exit process, with the asset sale step the one most at risk of being modified.
Business Insider will be covering the statement, forecasts, and press conference live starting at 2:00 PM ET.