We expect the post FOMC statement to include a continuation of the $40B/month MBS buying (and of the reinvestment of maturing assets of the Fed portfolio) and the start of a $45B US Treasury buying scheme that would replace the operation twist by which the Fed sells $45B of short-dated Treasuries for a similar amount of longer dated ones. This would expand the Fed balance sheet (which was not the case in the operation twist). We expect little changes to the eco and rate forecasts (to be published) and neither to the description of the economic situation that hasn’t changed meaningfully since the November meeting.
There is uncertainty about whether changes in the communication about future policy changes (numerical thresholds on unemployment rate and inflation) will be announced. We don’t think so. It seems the discussions inside the FOMC have not finished on the subject, but chairman Bernanke might elaborate on them during his press conference. We think that consensus has about the same view on the outcome, which means that deviations would move the market. The risk is for the FOMC to decide a lower amount of US Treasury purchases, which would be a negative for equities. Intrinsically it would be negative for Treasuries too, but if equities would lose sharply ground, Treasuries might hold on well. However, we would be surprised if the March Note future would leave its 132-25 to 134-01 range.