As mentioned in Monday’s Comment, we see four moving parts at today’s FOMC meeting: the QE guidance; the dot plot; technical tweaks to interest rates and/or standing facilities to counter some of the (excessive) downward push on money market rates; and tolerance of inflation. Below we will summarize our four-point preview from last Monday.

A sizeable minority of Fed-speakers (including key players such as Vice Chair Clarida) have suggested the Fed ought to ‘talk about talk about’ tapering. We see that as a sign that the Fed is willing to live with a less strong recovery in payrolls so that it can extract itself from an overly stimulative policy stance. Powell & Co can either give a stern taper warning (‘if payrolls continue to print around current levels in the next several months (500k), a taper announcement will be likely later this year’; so, in September). Alternatively, Powell & Co could make the taper hint less obvious. Instead expecting it to take “some time” before we see “further substantial progress” in the labor market. We could see a simple rephrase to this: continue with QE at its current pace until there is “further progress”. All roads lead to Rome and each outcome a September taper announcement/October taper seems the logical outcome.



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