FOMC meeting tonight: Here’s what the market expects to hear from Fed chair Jerome Powell

The markets are keeping a watchful eye on the Federal Open Market Committee (FOMC) upcoming meeting. The Fed statement is expected to give more clarity on the start of tapering sometime in December. In other words, the markets are not expecting a definite taper announcement tonight, but more of a signal that a taper announcement will surely come or not in their next meeting scheduled in November.

The other thing to note and focus on is the interest rate forecast dots, the dot plot as it is called. The so-called dot plot, which charts policymakers economic and rates projections, could offer clues on when the Fed will hike interest rates from the current near-zero level

"Longer-dated U.S. Treasury yields continue to coil in a very constricted range and Fed expectations have been stuck in neutral for weeks, with neither budging notably on the recent market volatility in risky assets," said Steen Jakobsen, chief investment officer at Saxo Bank to Reuters.

The median dot for 2022 (please refer to the video), next year is seen showing one hike. In the last meeting, which was in June, they were no hikes and for 2023 the dots are expected to move up and show a total of three cumulative rate increases.

Market watchers believe that it is unlikely unless two of these things happen. One, the US Fed formally announces tapering or two, the Fed deliberately pushes back the timing. Neither of which at this stage in terms of how expectations have built up, seems likely.

The market consensus is for the November taper announcement, followed by a December start of the tapering process itself.

Even if there is a hawkish tapering surprise in the statement, it is noteworthy that the Fed statement is followed by a press conference where Fed chair Jerome Powell can moderate the tone.