My guess is that they won’t. Drop the phrase” for an extended period” from their description of how long rates will stay abnormally low, that is. We’re getting close to that point in time, but I’m guessing they’d like to see a bit more data (and economic traction) before they signal that they plan to shift policy in the months ahead.
If they maintain the same dovish verbiage as the September statement, expect asset markets to rally strongly and the dollar to slump, at least in the near-term. A move to drop the “extended period” description is seen by many as a signal that a hike will come in the next three-to-six months. The buck would rally on that outcome and risk trades would slump as the days of nearly-free funding will be seen as coming to an end.
Bernanke is a noted expert on the Great Depression and will likely err on the side of caution in terms of overdoing easy monetary policy rather than taking away the proverbial punch bowl too soon.
Another potential outcome is the Fed maintaining the dovish tone but allowing several hawkish members to dissent. That too would send a signal that a change is somewhat more likely down the road. The dollar would likely get a modest boost on a hawkish dissent or two.
