When the Federal Reserve breaks the huddle from its last policy meeting of the year Wednesday, it will be a “tightrope moment” for the Janet Yellen-led Fed,
whose job is to “condition” markets for a coming rate hike next year without “freaking out the markets,” says Greg McBride, chief financial analyst at Bankrate.com.
McBride expects the Fed to finally jettison from its post-meeting statement the phrase “considerable period of time,” which refers to how long interest rates will be maintained at the current, near 0% levels.
Since this is Yellen’s last scheduled press conference until before March, now is an “opportune time” for the Fed “to start conditioning markets” for the eventuality of interest rate hikes in 2015, McBride says.
So what might that misstep be?
“A misstep by the Fed would be unnerving markets now by being more hawkish on interest rates than expected,” signaling earlier rate hikes, says McBride.
“Or conversely, if the Fed is too dovish now and has to ramp up the rhetoric later in order to prepare markets for an interest rate increase. In either event, (long-term bonds) could spike and stock markets would go into convulsions.”