Don’t expect much excitement this afternoon when the Federal Reserve concludes its two-day April meeting in Washington.
Unlike last month, no press conference is scheduled starring Fed Chairman Janet Yellen, and no update to the interest rate forecasts of the various Federal Open Market Committee (FOMC) members is expected to be released to the public. Indeed, the most that Fed watchers can hope for is the always terse, one-page statement from the Fed in which it says it decided to do basically nothing this month.
The Fed almost certainly won’t be touching the chronically low Federal funds rate, nor will it be radically changing policies that could somehow end up spooking the markets. While the Fed is largely expected to continue tapering its bond purchase program by another $10 billion, the market has already priced that in. It’s somewhat ironic because not so long ago even mentioning the word “taper” would have been enough to send traders screaming for the exits; today, it hardly makes an impact.
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Of course, there is a very small chance that the Fed could somehow surprise us all by, say, slowing the taper, or by reversing course on any number of policy objectives. But this go around, the smart money is on the Fed remaining quiet.
There is little chance that Janet Yellen will continue to be as predictably dull in the future when it comes to FOMC policy. Indeed, when the Yellen-led Fed decided last month that rates wouldn’t just automatically rise when (or if) unemployment drops below 6.5%, Yellen seemed to be telegraphing to the market to expect the unexpected.
For now, though, the consistency of the Fed’s dovish actions has Wall Street traders breathing a sigh of relief. The last thing this shaky bull market needs is an unpredictable Federal Reserve horsing around with interest rates and the like. But Yellen, the pragmatist, won’t keep rates low just to accommodate the markets, especially if she thinks the economy is in danger of overheating. Luckily, though, economic growth forecasts don’t show an overheating economy, so the markets can rest easy.
The Fed is expected to be done tapering and free from quantitative easing (QE) measures by October of this year. It is only after then that the Fed would even consider raising rates, not before. The question is, how long will the Fed wait before hiking rates? Yellen told reporters at the March FOMC press conference that rates would probably go up six months following the end of the QE measures. That would mean a rate hike could come as early as the end of the first quarter of 2015 and not near the end, as the markets had thought.
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Yellen has since tried to downplay her comments, but the damage has been done. Luckily, the markets were able to absorb the news without missing a beat. It had already priced in a rate hike for 2015; it was just a question of when that rate hike would go into force that was at issue.
So, for the next year, at least, the Fed is slated to have some pretty boring meetings. Today’s meeting is no exception.