The most awaited day of the month is here as Janet Yellen will chair her first meeting of the FOMC. In terms of market expectation the consensus is for another round of cut of $10B/month of assets purchases. Based on recent Bloomberg survey among economists 96% favors a $10B tapering (see Figure 1).

So despite the recent bad economic data from recent month due to bad weather and despite the geopolitical risk, Fed tapering should remain on autopilot and see a gradual move from his easing cycle.

The focus for today meeting should be on how FED will address his forward guidance which is expect to move from a robust guidance to a Qualitative Guidance so beside the employment and inflation factors Fed can be more transparent and provide more additional condition to his forward guidance.
  • Figure 1. FOMC Tapering Expectation.
And secondly, the next factor that can be a market mover is whether or not Fed lower his economic projection. If Fed lowers its 2014 GDP forecast due to recent bad economic data, they risk to send the wrong message to the markets and market participants may interpret this as pessimistic outlook for the economy due to weak growth, and they may sell the dollar. In Figure 2 you can see how the USD index reacted to the last FOMC meetings.


  • Figure 2. Fed Decisions and US dollar index reaction.
Best Regards,
Daytrader21.
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