It is all about the T-word


I've shared some thoughts earlier in the day on what we can expect from the Fed:

There's only one key thing to watch out for - that being 'tapering'.If the Fed is to actually taper by year-end, this is the meeting to tee up expectations of that considering that there are only three more FOMC meetings left (this included).The market isn't expecting an imminent taper announcement and if that comes, it will lean towards being more hawkish than expected. It would also be a major surprise as Powell has reiterated that they would have given some warning well beforehand.As such, the expectation is that they will at least acknowledge taper discussions have started and that there is the possibility of laying out the groundwork to taper before year-end. Perhaps Powell may steer clear of the timeline but it will be implicit.One key spot to watch will be changes to the statement and the progress that the economy is making. The issue with the Fed is that they don't really have differing metrics in starting tapering and gearing towards liftoff in rates.As such, the market may still run with a kneejerk reaction higher in the dollar and yields if we do see such hawkish changes to the Fed statement today.Otherwise, expect any major taper signals to come via Powell's press conference instead, if the Fed is smart enough to play things safe and make a clear distinction that tapering does not necessarily mean that the central bank is close to raising rates.

As outlined above, Powell's presser may be the more important thing to watch for in today's event as he will have some flexibility in clarifying the Fed's views on tapering, that is if they do steer clear of any explicit commitment in the statement.

Besides that, keep an eye on the infamous dot plots as that may arguably have more significant implications for the dollar and Treasury yields come the end of the day.

While the Fed has made clear that tapering and rate hikes are two separate ideas and that the end of bond purchases may not necessarily mean liftoff, expect the market to still feed off any changes to rate hike projections among Fed policymakers.

In any case, expect Powell to also repeat the caveat on this that there are many opinions within the Fed and that the dot plots are just but a compilation of views, and not the Fed's outright stance when it comes to tightening monetary policy.