
"At the next FOMC meeting, for sure the main event will be the forecast of interest rates," suggests Adam Narczewski who nevertheless does not expect any surprises here as "inflation in the US is low and will remain like this for an 'extended period of time.'" Bill Hubard believes the Fed's intention to improve its communication strategy will be an important step towards transparency, although "a rather smaller step for fine-tuning policy expectations."
Recent moderate improvements in the US economic data suggest that further quantitative easing should not yet be considered at the January meeting, although "the composition of the voting members is more dovish and the itch to launch another round of Quantitative Easing is evident," points out Yohay Elam. In the opinion of Talal Abdullah this move might be made a bit further into the year "if the US economy continues to slowdown during the first quarter 2012."
The FOMC monetary policy meeting will take place on January 24-25 and the interest rate decision will be announced the second day at 19:15 GMT. Below you will find full commentaries from the contributing analysts.
Kathy Lien - Director of Currency Research for GFT:
"The Fed is not expected to change their QE program but they will be releasing their forecasts on Fed Funds rates for the first time ever. In other words, they will be telling us when and how much they expect to raise interest rates in a chart that will be released four times a year The move is aimed at increasing transparency by giving the market a frame of reference but at the end of the day, it may create more confusion than clarity if the economic outlook starts to change due to unexpected shocks to the economy that ends up forcing the Fed to change their forecasts. The Fed obviously hopes that this new step will lower volatility in the long run, but there is plenty of room for greater confusion. What if the central bank decides in a given meeting to deviate from their forecasts? They are basically pre-committing to interest rate moves as far as 3 years out without knowing exactly how the domestic and global economy will perform. The only thing that we can be certain of for Wednesday is that the FOMC announcement will be an extremely interesting one."Talal Abdullah - Analyst at ecPulse.com:
"The FOMC will announce their monetary policy on Wednesday, and the Federal Open Market Committee is expected to keep the benchmark interest rates unchanged at their exceptionally low levels between 0.00–0.25 percent. As economic conditions continue to weaken, and inflation expectations remain stable, we should expect that the interest rates will remain at exceptionally low levels through mid 2013.The Fed’s Chairman Ben Bernanke signaled in his last speech that the Federal Reserve has the tools to respond if the economy continues to slowdown, and that means the Federal Reserve may announce a third round of quantitative easing (QE3), if the US economy continues to slowdown during the first quarter 2012, yet for now we do not expect a change in the monetary policy or even a clear signal for a move in the coming month as the Feds will reiterate their readiness to act to support growth. In fact, I do believe that the Federal Open Market Committee will keep the benchmark interest rates unchanged between 0.00 – 0.25 percent till the mid 2013, to support economic growth, as long as the inflation levels remain subdued."
Adam Narczewski - Financial Analyst at X-Trade Brokers, XTB:
"The Fed has been doing recently a decent job by pumping up the stock market. China is slowing down, the debt in Europe is far from being solved while the S&P500 is hitting 1,300 points. I think the Fed will try to keep 'helping' the markets. At the next FOMC meeting, for sure the main event will be the forecast of interest rates (as previously announced by the Fed on their last meeting). Inflation in the US is low and will remain like this for an 'extended period of time' so I do not expect and surprising forecasts of interest rates. Rather, the Fed will show it is inclined to keep them low as long as necessary in order to go back on the growth path. The recent improvement on the labor market is still not a reason for the Fed to make big announcements or change it’s monetary policy views. If the improvement is steady (3-4 months in a row) the Fed might change the tone of its statements."Yohay Elam - Analyst at Forex Crunch:
"I believe that the Federal Reserve will stick to the same policy for another meeting. The composition of the voting members is more dovish and the itch to launch another round of Quantitative Easing is evident, yet there is no justification for that. Not yet. One of the goals of QE is fighting deflation, but prices in the US continue rising. A possible trigger for such a move would be headwinds to the US economy from Europe. While Europe is certainly in deeper trouble, the US continues to weather the situation quite well.I think that the FOMC will wait for at least another meeting before sending a signal regarding QE3 - a signal that will aim to ease the pain on the housing sector. A possible move isn't likely before the second half of the year. With no kind of signal now, the dollar could rise. Any serious concern regarding foreclosures or underwater homes could be interpreted as a first signal, and could weaken the dollar."






