Fed Chair Powell will almost certainly be asked about ongoing balance sheet unwind - ABN AMRO

"The FOMC is widely expected to keep policy on hold this Wednesday. Given the significant shift in communication from Fed officials in recent weeks, the focus will be on any further tweaks to the statement, and on Chair Powell’s first press conference of 2019," notes Bill Diviney, a senior economist at ABN AMRO.

Key quotes

"We think the 2019 set of voting members will have a more dovish tilt than that of 2018, particularly against the backdrop of a softening growth outlook. This supports our view that the rate hike cycle has come to an end."

"We expect minimal changes to the statement at this stage, given that the market has already moved significantly to price almost no tightening for the coming year. While we believe the Fed is done with rate hikes, we think the tightening bias will remain in the statement language (i.e. that the Fed expects ‘some further gradual increases’ in rates), as it did at the end of the last rate hike cycle in 2006-7."

"In the Q&A, Chair Powell will almost certainly be asked about the Fed’s ongoing balance sheet unwind. In previous press conferences, he has batted away such questions, downplaying the impact of the balance sheet. More recently, however, he and other Fed officials have signalled more openness on the topic, stating that while they see little evidence that it is having a big impact on the markets or the economy, that it is possible they would make adjustments to the policy. Indeed, the Wall Street Journal reported last Friday that Fed is close to a decision on what the ultimate size of the Fed’s balance sheet should be – or, more specifically, the level of excess reserves."