Fed meeting wraps up today: Five things to watch for

The Federal Reserve is expected to announce the end of its easing program but stay the course on interest rates during its Wednesday meeting. In addition, Federal Reserve watchers will look for  a bullish labor market stance and expect a more tempered reaction from the financial markets.

Susan Walsh/AP
Federal Reserve Chairwoman Janet Yellen speaks during a meeting of the Board of Governors of the Federal Reserve System at the Federal Reserve in Washington. Ending a two-day discussion Wednesday, Oct. 29, 2014, the Fed is expected to announce the end of its monthly bond buying program. It's also expected to signal that it remains in no hurry to raise its key short-term interest rate.

The Fed Wednesday is expected to announce the end of the extraordinary easing program it first launched during the financial crisis, and markets could shrug it off as long as the Fed sounds dovish.

"Last month, there was this intense speculation about the Fed, and they delivered pretty much nothing. Now there's no speculation, and they're expected to deliver nothing," said John Briggs, head of cross-asset strategy at RBS.

Fed watchers say the Fed is unlikely to change the language in its statement about keeping rates low for a "considerable time." That was the focus of speculation last month, as was the idea that it could alter the language about labor market conditions.

"They don't want to send the wrong signal. They don't want to spook the markets. I think they'll be a little more bullish on the labor markets but they'll pivot to inflation. They'll be more worried about inflation," said Diane Swonk, chief economist at Mesirow Financial. "The markets seem pretty well prepared. The Fed has prepared them for tapering."

The focus now will be the Fed's still long path toward raising the fed funds rate from zero, where it's been since 2008. But the Fed is not likely to give any clues Wednesday about when that could start even though its forecasts show a possible midyear start date, versus the market's expectations the first hike will not be until the fourth quarter of next year.

While the Fed is expected to attempt to be market neutral in its 2 p.m. statement Wednesday, it may be that some of the reaction to the end of QE already was thrashed out when markets reacted to global growth concerns and Ebola earlier this month. The stock market has been rebounding, recovering nearly all its losses, and the Dow and S&P 500are both less than 2 percent from all-time highs. The S&P lost 9.8 percent from mid-September to mid-October.

Bond yields in October carved out a new lower range, and expectations for yields have been reset to lower levels across Wall Street. Besides keeping short-term rates low, Fed watchers say it hopes to suppress longer term rates with the huge amount of bonds it holds on its more than $4.4 trillion balance sheet. The 10-year yield was at 2.29 percent Tuesday.

Stocks rallied Tuesday, shrugging off weaker durable goods orders, and focused instead on better earnings and a sharp jump in consumer confidence. The Dow was up 187 points to 17,005 and the S&P 500 was up 23 at 1,985, above its 50-day moving average. The small-cap Russell 2000, which has been lagging, jumped 2.9 percent.

Swonk also expects the Fed to remain open to another round of quantitative easing even though it wants the program to end. "They have to leave the door open to QE4, but they really don't want to do it. One of the things they made clear is they want the balance sheet steady. Is it the flow or the stock? They made clear they want to keep the balance sheet steady until they start raising rates," Swonk said. The Fed currently purchases assets to make up for those that mature, and that practice is expected to continue.

Janney Montgomery chief investment strategist Mark Luschini said the markets will be looking to see if the comments made by St. Louis Fed President James Bullard earlier this month are reflected in the statement. Bullard, at a time when markets were wavering, said the Fed could move away more slowly from QE if there was too much market turbulence, a comment that sparked a stock rally.

While unlikely, "that would be a boost to equity prices," Luschini said, adding that the end of QE should not move the market, as it is expected. "That's got to be well discounted at this point in time. If they dropped the 'considerable time,' that would be a big deal and that would be interpreted as hawkish," he said.

Fed watchers, surveyed by CNBC, saw a 1-in-6 chance the Fed would launch another QE program. A majority—68 percent—of the respondents also said there was a bigger risk the Fed would be more dovish than their forecasts.

Besides the Fed statement, investors will be watching another wave of earnings news. Deutsche BankFiat Chrysler, Total, Statoil report head of the U.S. open, as do HersheyWellpoint HealthRalph Lauren, Southern Co, Garmin, Weste Mangement, Booz Allen Hamilton, Carlyle Group, Eaton, Automatic Data and PraxairKraft Foods, Baidu, Visa,MetLife, F5 NetworksDreamworks Animation, and Suncor report after the closing bell. 

The Treasury auctions $35 billion in five-year notes at 1 p.m.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.