Fed looks to avoid crossed signals at policy meeting

NEW YORK/SAN FRANCISCO (Reuters) — Only two things will really matter when Federal Reserve Chairman Jerome Powell strides to the podium for his press conference on Wednesday after the end of the US central bank’s latest two-day policy meeting: Dots and bonds.

That Powell and his colleagues will leave the Fed’s benchmark overnight interest rate unchanged in a range of 2.25 percent to 2.50 percent and stick to their pledge of a “patient” approach to monetary policy is effectively a given.

The big reveal, though, will be whether policymakers will have sufficiently lowered their interest rate forecasts to more closely align their notorious “dot plot,” a diagram showing individual policymakers’ rate views for the next three years in little blue-shaded circles, with that pledge of patience.

And, just as importantly, what new details will they share on a plan to stop culling the Fed’s holdings of nearly $3.8 trillion in bonds?

“It’s going to be new information for the market to trade whether it’s the Fed’s intention or not,” said Ben Jeffery, a strategist at BMO Capital Markets.

Dissatisfaction with Powell’s remarks in December regarding the balance sheet threw markets for a spin and helped lead to the Fed’s pause on rates a month later. Since then, the Fed chief has explicitly said one of his aims is to avoid “needless market disruptions.”

Traders currently expect there will be no rate hikes this year, and are even building in bets for a rate cut in 2020. Any gap between that view and the Fed’s could send markets lower. So too could a sharp drop in policymakers’ ratehike expectations, especially if coupled with a softer economic outlook.