Fed Hike Aftermath Series: Fed meeting ahead- most crucial monetary policy meeting of the year

Today, FOMC policymakers will announce interest decision and publish future outlook at after the closing of two-day discussion on monetary policies at 18:00 GMT. The announcement will be followed by a press conference from chair Janet Yellen. The event can be broken down into three parts/tools, which can be used individually to send hawkish or dovish signals.

• Monetary policy statement and decision – The statement can be used by Fed to send hawkish or dovish signals. For example, Fed can signal a pause in hikes, provide no clarity at all on rates except for data dependency or it can send clear hawkish signals by saying that hike is appropriate soon or later this year. The statement is also expected to announce the beginning of the balance sheet shrinking. If that signal is not there without any clear date, it will be a very dovish signal.
   
• Fed projections: The current Fed projection on rates shows interest rates at 1.4 percent for 2017, 1.9 percent for 2019, and 2.8 percent over long-term. FOMC policymakers can tweak these numbers to signal hawkish, dovish or neutral stances. It can also use other economic projections such as inflation and GDP to growth to send signals.
   
• Press Conference: Chair Yellen could use her press conference to build up or diminish market expectations and reaction after the initial policy decision announcement half an hour ago. There is a speculation that she might announce that she will be leaving when her term ends next year on February. Such a move could be bearish for the dollar due to uncertainties as several Fed policymakers including Vice-Chair Stanley Fischer have resigned since the election.

The dollar index is currently trading at 91.45, down 0.17 percent for the day so far.