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The Fed is expected to end 6 years of  Quantitative Easing and that’s enough to make this Fed decision  a major market mover after a period of relative calm. Apart from the historic move, there are three other things to watch out for:  guidance on rates, the assessment of  employment and the assessment of inflation.

Update:  QE Ends – Fed somewhat bullish on employment – USD stronger

What is priced in? What isn’t and could stir markets? Here is a quick preview:

  1. End of QE: Bullard stirred markets by suggesting it should continue,  but he is not voting and the Fed is set to end QE3. Here are  5 reasons to dismiss the doubts about the end of QE. At this time, the end of QE is already priced in. If the Fed continues QE, the dollar is set to free-fall.
  2. Rates: The most important part of the statement refers to rates. The Fed repeated its stance that rates are set to remain low for a considerable time after QE ends. Naturally, with the end of QE, this phrase will have to be altered. The expectations stand on  the smallest possible change: just leaving it at “a considerable time” and keep markets guessing / following economic data. If the phrase is removed (very unlikely), the dollar will surge.
  3. Employment: The Fed sees a “significant underutilization” of the labor market. This dovish statement could change as NFP, JOLTs and jobless claims have all been very impressive. So, there is a better chance of a more hawkish stance on employment. If this phrase is left unchanged, the dollar is set to significantly fall, and if it is removed, it is set to  slightly advance.
  4. Inflation: The second mandate of the Fed is  worrying, with inflation expectations falling. Here, some expect the Fed express move worries, while others expect no change. So, there is a better chance of a more dovish stance on inflation. More  worries would be slightly  dollar negative, and leaving the current stance  unchanged would be dollar positive.

Follow a live coverage of the Fed decision with Valeria Bednarik and myself  here:


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