The other issue at hand will be the Fed’s balance sheet, which is not addressed through the dot plot or any of the other measurement guidelines central bank officials provide in the summary of economic projections.
Instead, communication on that will be left to the post-meeting statement, which some in the market expect could contain a time line on when the Fed will halt the reduction in its bond portfolio along with indications of where bank reserves will be once the process is complete.
The committee began reducing its bond holdings in October 2017 by allowing a capped level of proceeds in Treasurys and mortgage-backed securities to roll off each month. The process has resulted in a reduction of about $450 billion, leaving the total balance sheet around $4 trillion.
While market experts disagree over the actual impact the balance sheet has had, the Fed has sought to assuage concern by pointing to an imminent halt to the program. Markets expect an official announcement that the roll off of proceeds will end this year, though Wednesday’s announcement could include more specificity.
Should any of the language around the issue disappoint, that could cause more market problems.
“I think they’re going to be a little vague about the exact timing and level of bank reserves as they work through that,” Loh said. “I would add that into something that market would expect to hear.”