Markets are expected to remain in a tentative mood today, with the spotlight firmly on the Fed which concluded its two-day session this afternoon. The market isn’t expecting any surprises from the Fed this afternoon and the FOMC will try its best not to disappoint on that front.
Taper has effectively become a non-event, with the Fed expected to stay on course and announce another $10 billion cut to the pace of its bond purchases today. With benchmark treasury yields lower now compared to the start of the year or where they went immediately after the start of Taper talk a year ago, the smooth QE unwind has to be termed a success. The performance is particularly impressive given the passing of leadership baton from Bernanke to Yellen while the QE Taper was getting underway.
But many suspect that the lower yields are less a function of Fed effectiveness and more a result of the bond market’s skepticism of the consensus growth outlook. The FOMC members and the stock market believe that the U.S. economy was pulled down by temporary forces in the first quarter and remains on track for a sustainable above-trend growth in the current and the coming quarters. To that end, it will be instructive to see the FOMC members’ GDP growth projections this afternoon. With Q1 GDP growth expected to get revised down even further, FOMC members will likely lower their projections for this year from the March level of +2.8% to +3%.
— Zacks Investment Research