Traders are watching for clues on Fed timing in its statement, particularly around the Fed’s dual mandates of helping employment and fighting inflation. It last said unemployment “remains elevated,” and described inflation as running below its objective of 2 percent.
The Fed has said it would end the bond buying program in October, so it is likely the talk will turn to post-tapering actions, like when the Fed could end its policy of reinvesting the proceeds as the securities within its portfolio mature.
Economists expect the Fed’s more hawkish members to ramp up their calls for ending easy policy, if economic data improves. Friday’s July employment report is expected to be an important metric for the Fed, as is the personal consumption expenditures (PCE) inflation reading, due the same day.
“Knowing (Fed Chair) Janet Yellen, she’ll wait until March, but I think pressure is really growing to do something in January. Whereas the market doesn’t think this happens until the middle of next year, and all the economists at the big firms don’t think it’s happening until the third quarter,” said Peter Boockvar, chief market analyst at the Lindsey Group.
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