On Wednesday, the Fed has a big day. There’s the normal, scheduled FOMC meeting. Then there’s the press conference. The Fed will also reveal its latest economic forecast, and according to the WSJ’s star Fed reporter John Hilsenrath, there’s a good chance that it’s going to be lower.
Hilsenrath also sums up the most likely policy outcome: No more easing, but no tightening. The Fed’s existing portfolio of bonds will simply hold steady at their current level and that will be that.
While the end of QE might be seen as dollar bullish, as Morgan Stanley has pointed out, we could be set up for the reverse. Granted, expectations for tightening are obviously low (given the trajectory of the dollar lately), but if Bernanke is particularly vague at the press conference, it could signal that there really is no tightening whatsoever in the works, thus helping the dollar continue its downward spiral.
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