All-Important Fed Meeting This Week

All eyes will be on the Federal Reserve this week, as the FOMC meets Tuesday and Wednesday to set monetary policy.  Expectations for tapering the bond buying program have increased in recent weeks as many economic indicators have strengthened.  Coupled with a budget deal that removes fiscal uncertainty next year, economists are now split evenly between now and March on when they expect tapering to begin.  Of the five core areas of focus for the Fed (employment, economic growth, inflation, financial conditions and fiscal policy), four categories are on an uptrend.  The one laggard has continued to be low readings on inflation.  On Friday, a measure of producer prices was released and showed a decline in prices versus last month.  Based on recent price action in Treasury notes, the market has largely priced in an eventual tapering.  Whether the Fed moves now or next quarter is largely irrelevant; what is more important is how the economic outlook for FY14 evolves.  At this point, domestic conditions are largely looking up.