WASHINGTON (6/18/14)--When the Federal Open Market Committee (FOMC) concludes its two-day meeting today, the easy prediction is that it will announce a plan to shave yet another $10 billion off of its quantitative easing program.
The tougher task, analysts believe, is guessing what the Federal Reserve's monetary policy-making body will have decided, if anything, about what to do once that bond-buying program is completely phased out, almost a certain inflection point for the economy.
Both raising short-term interest rates from their near-zero levels and drawing down the Fed's now massive portfolio are on the table, but the timing and the pace of both moves remain up for debate.
The Fed won't maintain near-zero interest rates as the economy strengthens, nor will it maintain a $4.5 trillion balance sheet, Alan Blinder, economics professor at Princeton University and former vice chair of the Federal Reserve, told MarketWatch Monday.
The kicker is that the mere suggestion by the committee of one strategy or another can send waves through the market, meaning, no matter the FOMC's plan, it's likely the majority of the group will keep any decision as quiet as possible.
But there are serious disagreements among the FOMC, Binder told MarketWatch, adding that, without naming names, there are a number of members who don't hesitate to publicize their disagreements.
The backdrop for these decisions by the FOMC, in addition to updating its economic forecast and offering up new interest-rate projections this week, will be the state of the economy, which sputtered in the first quarter.
The committee will have to weigh the 1% contraction the economy experienced in the first quarter, headlined by an anemic housing market, and at the same time consider the 3-plus percent rebound in growth expected for the second quarter.