FedWatch: Market will scrutinize FOMC's language
The Federal Reserve’s Federal Open Market Committee statement is always carefully worded and closely analyzed by market participants. The most recent FOMC meeting minutes described some members openly fretting that the movement in the dot chart could be "misconstrued," which suggests they are aware the combination of qualitative forward guidance and diffuse Fed communications heightens the risk of miscommunication and market volatility. Thus, no change to the FOMC statement will be made lightly, and any alteration to forward guidance will garner heightened market attention.
Lastly, we believe the Fed has a high bar for any deviation from the gradual tapering of long-term bond and mortgaged-backed security purchases. We see no justification in the economic data or in financial market conditions that will lead the FOMC to deviate from the tapering path when policymakers meet Tuesday and Wednesday of next week. Expect it to announce another reduction in monthly long-term purchases of $10 billion.