The lack of action would also be justified by the fact that "the fundamental picture remains relatively unchanged," as Richard C. Lee points out. The analyst acknowledges that "pockets of the economy have improved over the last quarter" but nevertheless he believes that "the Federal Reserve will likely remain steadfast in its current policy direction for much of 2013."
Other analysts polled for the special forecast report agree with this opinion. Their projections are quite similar, with Yohay Elam suggesting that "rates will probably remain low until 2015, and less QE isn't due until 2014," Albero Muñoz predicting that "it's not very likely that we have any change in monetary policy through 2013" and Ilian Yotov saying that "the Fed will stay the course at its January meeting and quite possibly for the rest of the year."
According to Yohay Elam the FOMC will rather concentrate on the economic outlook and it "could acknowledge the ongoing slow recovery and the lower level of political uncertainty as positive factors, but without any hint on policy change anytime soon." Valeria Bednarik emphasizes however that if the members consider withdrawing QE gradually towards the end of the year we could expect "strong risk aversion rallies during the announcement, with dollar favored across the board."
The FOMC will release its monetary policy statement on January 30 at 19:15 GMT. Read below full forecasts of the contributing experts.
Ilian Yotov - FX Strategist and Founder at AllThingsForex:"The Fed has made it very clear that policy makers are committed to an open-ended QE until the unemployment rate falls below 6.5% or inflation exceeds 2.5%, so we know that QE is here to stay and that current conditions still 'warrant exceptionally low levels for the federal funds rate at least through late 2014.' In other words, the Fed will stay the course at its January meeting and quite possibly for the rest of the year. The greenback could come under pressure if the FOMC statement reminds the markets that the Fed's aggressive QE and record low rates are not going away anytime soon."
Yohay Elam - Analyst at Forex Crunch:"The Federal Reserve is not expected to make any policy changes this time, after making a big move last time. The recent decision was dramatic: more open ended bond buying and a change in guidelines towards employment and inflation targets. While some members saw a potential easing in easing towards the end of the year, this does not reflect the dovish stance of most members, including Bernanke. If nothing surprising happens rates will probably remain low until 2015, and less QE isn't due until 2014.
The focus for this rate decision will be the view about the economy: the Fed could acknowledge the ongoing slow recovery and the lower level of political uncertainty as positive factors, but without any hint on policy change anytime soon."
Richard C. Lee - Forex Analyst at FXstreet.com:"The fundamental picture remains relatively unchanged, even if pockets of the economy have improved over the last quarter. Still, the Federal Reserve will likely remain steadfast in its current policy direction for much of 2013, leaving no likelihood of a rate change this month."
Kathy Lien - Managing Director at BK Asset Management:"Rates will remain unchanged until 2014. Not looking for much from the Fed in Jan. Some members will still be talking about phasing out QE this year but that will be the minority and not the majority."
Steve Ruffley - Owner of Tradermaker.com:"With Bernanke and the FED committed to holding rates until 2015 what can they do? They have shown their hand and now have to play out the rest of their polices in line with the bold statement they made. In their defence there was not much else they could do, and still can do with respect to rates. In the US just like the rest of the world there was a need to ease consumer’s debt burden and try and stimulate spending and growth. I think we can all agree this did not have the desired effect, however it has brought some semblance of stability. I see very little chance of the monetary policy being eased, the US although having miraculously avoided the fiscal cliff, the underlying issues such as tax increases and cuts in the public sector spending still have to be addressed. Until we have the inevitable ‘too big to fail’ failure or a reversal in the positive trend in job and sentiment figures there will be a wait and see approach to any policy or rate decision the FED make. For me right now, no news is good news for the FED."
Alexandra Estiot - Senior Economist at BNP Paribas:"In December, FOMC members announced that they would keep interest rates as low as currently as long as the unemployment rate remains above 6.5%, under the condition that inflation is not foreseen as accelerating above 2.5%. Based on members’ projections about the unemployment rate and inflation, this is consistent with low rates until mid-2015. That date is also the one pointed at by Janet Yellen a few months ago, when she exhibited the 'optimal control'rule, designed to minimise the deviation of the unemployment rate and the inflation rate from their natural rate or target. In short, the forward guidance was not changed, but instead of focusing on a date, it is now dependent on economic developments. There is no reason for FOMC members to be much more optimistic than they were in December. The fiscal cliff has been avoided and more recently, Representatives decided on temporarily suspending the federal debt ceiling. The occurring probability of tail risks dropped, but since they were just that, tail risks, their disappearance should have no effect on the central scenario. Rates will remain as low as currently until mid-2015, unless something else changes the Fed’s diagnosis. 2013 will not be about rate setting, but about enhancing the way the Fed communicates. It will likely make it clearer what kind of string of events would trigger a change in its policy. More specifically, after having spelled out what would lead to an increase in the Fed Fund Target, FOMC members could get more specific about what would make them slow and ultimately stop purchasing MBS and Treasuries."
Nicky Ong - Co-Founder of Traders Corner:"As it is the first interest rate announcement of 2013 it will be interesting to see how the new members of the FOMC impact on monetary policy. Charles Evans and Eric Rosengren are known doves, and this is likely to cause division amongst the ranks considering Bullard’s recent hawkish comments.
At the last Federal Reserve rate decision back in December it was agreed that interest rates would be tied to economic performance, specifically Unemployment and Inflation. However, this concept does not appear to be agreeable to all voting members. Federal Reserve Bank of St Louis President James Bullard has stated publicly that the he is 'nervous' of over-committing to easy monetary policy.
The minutes of the last meeting show the Fed was divided in opinion with regards to when to conclude asset purchases, and with the influx of new voting members this is unlikely to change. For this reason I am of the opinion that monetary policy will not be modified in anyway at the January meeting.
However, the Labour Department recently reported that slow and steady hiring has resulted in falling unemployment rates across the U.S. 25 of the states now have an Unemployment Rate below 7%, with some of the hardest hit states showing solid gains as well. For this reason I expect the labour market will continue to improve at a similar rate seen over the past 2 year, consequently bringing the overall Unemployment rate to around 7% or below by year end. As a result I believe we will see some scaling back in asset purchases, and a gradual move toward tighter monetary policy, but not until the beginning of 2014."