Fed’s Decision Day Guide From Statement to Bernanke's Press Talk

Here’s what to look for when the Federal Open Market Committee releases a statement and new economic forecasts at 2 p.m. after a two-day meeting in Washington and Chairman Ben S. Bernanke holds a press conference at 2:30 p.m.:

-- An indication from Bernanke during the news conference that any tapering of the Fed’s large-scale asset purchases would be conditional on an improving economy, according to Michael Hanson, senior U.S. economist at Bank of America Corp. in New York. The yield on 10-year U.S. Treasury notes climbed to 2.19 percent as of 5 p.m. yesterday from 1.93 percent on May 21, the day before Bernanke told a congressional committee the FOMC “could” reduce purchases in “the next few meetings” if the outlook for the labor market improves and the Fed is convinced the improvement can be sustained.

-- Possible guidance in the 2 p.m. statement about the Fed’s monthly bond-purchasing program. The FOMC may signal the amount by which it would begin decreasing the pace of purchases, currently $40 billion a month in mortgage bonds and $45 billion in longer-term Treasuries, according to John Herrmann, director of U.S. interest-rate strategy at Mitsubishi UFJ Securities USA Inc. in New York. Economists surveyed by Bloomberg this month said the Fed will probably make its first move at its Oct. 29-30 meeting, trimming to $65 billion a month.

Inflation Forecast

-- A revised inflation forecast in the projections at 2 p.m. based on the recent slowdown in prices. While participants in March expected 1.3 percent to 1.7 percent inflation for 2013, the Fed’s preferred price gauge increased 0.7 percent in April, well below the bank’s 2 percent goal. Still, with economic growth likely to pick up in the second half of this year, officials may be “somewhat sanguine toward what appears to be a transitory inflation soft patch,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said in a note.

-- A possible improvement in the projections in the Fed’s outlook for the unemployment rate, which in May stood at 7.6 percent. In March, officials expected an unemployment rate of 6.7 percent to 7 percent for the fourth quarter of 2014. The bank has pledged to keep interest rates near zero as long as joblessness is above 6.5 percent and the inflation outlook is no more than 2.5 percent.

-- A comment by Bernanke at the press conference on the conditions under which the bank would slow bond purchases later this year, how it might be implemented, and what implications that would have for how long to keep the Fed’s target interest rate near zero.

‘Slower Pace’

-- “Our expectation is for Bernanke to use the press conference to emphasize the message that even when the QE purchase size is cut, the Fed will still be easing policy, albeit at a slower pace,” Millan Mulraine, director of U.S. rates research at TD Securities USA LLC in New York, said in a report. “Moreover, he will likely reiterate that any policy tightening remains well into the horizon.”

-- A comment from Bernanke on his plans when his current term expires in January, following President Barack Obama’s comment in an interview this week that “he’s already stayed a lot longer than he wanted or he was supposed to.”

-- Editors: Kevin Costelloe, Carlos Torres

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