What to Expect From Ben Bernanke's Federal Reserve Meeting On Wednesday


Wednesday, the Federal Reserve will have its press conference given by Federal Reserve Chairman Ben Bernanke after the the release of the Fed's meeting minutes and its decision on interest rates. On May 22, in a congressional briefing, Federal Reserve Chairman Ben Bernanke said that the central bank would possibly begin the downsizing of its $85 billion per month bond-buying program "in the next few meetings." The problem lies in the fact that what Bernanke said in May was a reiteration of his decision to not raise short-term interest rates at least until the unemployment rate falls to 6.5%, and not begin to reducing its buying of long-term bonds until "the outlook for the labor market has improved substantially." As a result the market has experienced a downturn as a result of the vagueness of these statements. Post-conference, however, everything will become clear and the market will either experience a boost or a fall as a result.

Economists Peter Hooper, Michael Spencer, and Torsten Slok say any sort of significant asset-price movement before the FOMC meetings depend on whether the news conference suggest markets have tended to anticipate an easing bias as a result of the announcements.

While the news conference itself is not usually associated with bigger moves than those that follow the release of the Fed's statement, it seems that the Federal Reserve's news conference has also been vital in its "clarification role," with markets often readjusting back with a chunk of the move seen immediately after the Fed announces its rate decision.

So now it all boils down to the decisions taken by the U.S. Federal Open Market Committee's two-day policy meeting, which finally ends Wednesday. Even with all the tapering talk, the overall consensus on Wall Street is that the Federal Reserve will maintain its bond buying (quantitative easing or QE). Nomura economist Aichi Amemiya wrote in a research piece to clients that "We do not expect the FOMC to announce a reduction in the pace of its asset purchases at its June meeting."