- The Fed's September meeting has been widely anticipated since the central bank is expected to signal that it’s close to announcing the taper of its bond purchase program.
- That will be the first big step away from the policies it put in place to counteract the impact of the pandemic on the economy and financial markets.
- But the focus of markets will be squarely on what the Fed now forecasts for interest rates and inflation.
After Monday's market turbulence, the Federal Reserve's challenge will be to sound reassuring while acknowledging it's preparing to make its first major step away from the easy policies it put in place to fight the pandemic.
The Fed will release a policy statement along with the economic and interest rate forecasts it issues quarterly at the end of its two-day meeting Wednesday afternoon. Fed Chairman Jerome Powell is expected to brief the media at 2:30 p.m. ET. The central bank is widely expected to indicate it is getting ready to announce it will start paring back its $120 billion in monthly purchases of Treasurys and mortgage-backed securities.
The Fed's meeting began Tuesday, following a turbulent day in global markets on worries that China's big property developer Evergrande could collapse and spread contagion outside China's borders. The S&P 500 had its worst day since May on Monday. Stocks stabilized a bit Tuesday, as investors looked to the Chinese government to contain the situation.
"Does the last couple of days' price action in markets or China have an influence on their thinking? My guess is it's going to enter the discussion, but I still think they're going to end up in the same place we were going to end up in," Rieder said.
He expects the Fed to cut back the purchases at a pace of $10 billion Treasurys and $5 billion mortgage-backed securities a month, once it starts the taper.
What could move markets
"By and large, the tapering is probably not a market moving event," Columbia Threadneedle head of multi-asset strategy Anwiti Bahuguna said. She noted the focus Wednesday will be heavily on the forecasts and the Fed's "dot plot," the chart it uses to present the anonymous interest rate forecasts of central bank officials.
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