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What will the Fed do? After seeing good data followed by disappointment, the common answer is “no change”.

John Kicklighter of DailyFX discusses the options facing the Fed.

Update: Here is the second part of the interview

John Kicklighter is a currency strategist for FXCM in New York where he specializes in combining     fundamental and technical analysis with money management. John authors a number of regular articles for  DailyFX.com, ranging in topics from basic fundamental forecasts for the G10 economies and commodities to more complex subjects like the level of risk sentiment across the financial markets and the carry trade specifically.    John has actively traded since he was a teenager. His experience ranges from spot currency, financial futures, commodities, stocks, and options on all of these instruments for his personal accounts. John graduated from the Zicklin School of Business at Baruch College in New York with a Bachelors degree in Finance and Investment.John Kicklighter

There is heavy debate amongst market participants and analysts for which way the Fed will tip with its bearing towards monetary policy heading forward. Over the previous few months, central bank members have offered commentary that has reflected a growing support for throttling back on the aggressive QE3 injections.

Owing to surprisingly clear remarks made by a few ‘fence sitters’ it even seems that there is a modest majority call to reduce the monthly purchases by summer and possibly see a full stop by the end of the year. However, the past two weeks have seen the rise of a starkly contrasting view.

A significant drop in US and global inflation readings and the more recent slump in commodity prices has many believing that the next move would be to fight deflation. I doubt there is little real risk of deflation and most Fed members likely recognize this.

Realistically, this policy meeting is likely to end without a serious change in the ranks for more or less stimulus. However, ‘no change’ can be a market moving outcome as well considering so much speculation has been dedicated to a move.

Update: the Fed indeed made no changes and EUR/USD had a very choppy reaction. The Fed mentioned that fiscal policy restrains growth.