Here is the write up on the April 25 FOMC statement.
The FOMC meeting is already underway with a two day meeting from Tuesday, April 24 to Wednesday, April 25. The FOMC statement, which summarizes the decisions of the Fed, is set for release Wednesday at 12:30p.
Current Fed policy is ZIRP through 2014 and operation twist until June. The Fed won’t dial back on either of these program, but, if it did, a sharp sell off in equities, a fall in bond yields, a fall in commodities and precious metals, and a rise in the dollar would ensue.
Much more likely, but still not probably, the Fed could announce an extension of operation twist or an entirely new asset purchase program altogether. Further QE by the Fed would goose the markets and pull the dollar down, with the effect of goosing dependent on the program.
The most likely outcome is that the Fed takes no action tomorrow. This in itself should not cause a market reaction as it’s largely expected. Therefore, what the market will be riding on is the language that the Fed is using and this is where it gets tricky because it’s all about QE. If the Fed is very positive on the US outlook, then expect a sell off, as no new easing is being hinted at in the near future. Likewise, if the Fed is very negative on its outlooks and thinks inflation is tame, then expect a rally over the prospects of more QE.
The Fed has painted itself in a peculiar position. It has repeatedly said that if the economy weakens further or if the recover is not deemed strong enough, it would jump in with more QE. However, stocks, perhaps the most visible, yet extremely unreliable measure of US economic well being, will have trouble selling off now that the market knows that risk assets will be pumped up once they first go down. In the court of public opinion, it is likely that the stock market first dropping is what will give the go ahead signal for more QE. But the Fed can’t wait for forever, because yields must be kept ultra low to support the extreme amount of borrowing that the US economy is now dependent on.