March FOMC meeting

Today is the first day of the March FOMC meeting, including the first press conference by the new FOMC Chair, Janet Yellen. I would guess that nobody expects any change in the “tapering” process, that is, the Committee is likely to reduce its monthly bond purchases by another USD 10bn. There is likely to be a change in the presentation of the FOMC’s forward guidance, much like occurred in the UK. I expect them to drop the line in the statement that says they will keep rates at their current level “as long as the unemployment rate remains above 6 1/2 %” and instead replace it with some fuzzier criteria on unemployment and inflation. However, the Committee will want to do this without giving the market any reason to think that rates will be hiked sooner than previously thought, so they will probably emphasize that they continue to expect it will be quite some time before they start to hike rates and that when they do start, they will do so slowly and cautiously – much like what the Bank of England said. Nonetheless the experience of the BoE shows that this change could support the dollar.