WASHINGTON (9/16/14)--Should the Federal Open Market Committee's (FOMC) quantitative easing program come to an end in October as many predict, the Federal Reserve's monetary-policy making body likely then must decide how it will determine when to raise interest rates from near-zero levels.
Evidence of what will go into that decision could emerge Wednesday when the FOMC concludes a two-day meeting and releases its always-anticipated policy statement.
Some economists believe at the end of the meeting the Federal Reserve will announce an alteration to the forward guidance that will shape that decision, often referred to as its "exit strategy."
But as mere statements about monetary policy from the Fed can shake up markets dramatically, there's no guaranteeing what the FOMC will release, Paul Ashworth, Capital Economics chief North American economist, told Forbes.com.
"Whether or not the forward-looking guidance will be tweaked at this upcoming meeting, is nevertheless, still up in the air," Ashworth said. "It is possible that officials can't reach an agreement on the exact wording. With the first rate hike still at least six months away, a decision doesn't need to be taken immediately."
The Fed has maintained that it plans to keep interest rates pinned down long after the asset-purchase program expires, especially if "projected inflation continues to run below the committee's 2% longer-run goal, and provided that longer-term inflation expectations remain well anchored" (MarketWatch Sept. 15).
If that language is removed from the policy statement this week, however, that could signal a hastening of when the FOMC plans to raise those rates from mid- to late 2015 to perhaps March of next year, according to some.
"We expect the Fed will begin to set the stage (this) week by signaling that its zero-bound interest rates policy will soon be history," Bernard Baumohl, chief global economist at The Economic Outlook Group, told MarketWatch.