Views ahead of the Fed: Ben Bernanke to face a potentially challenging press conference

Lloyds Bank Research, in a morning note to clients say:

"The dominant event of the day is the outcome of the FOMC meeting, although it is very unlikely that there will be a policy change. However, focus will be on any new information on when the Fed will start to taper its present round of QE.

"In all the Fed has three opportunities to influence expectations today, through the post meeting press statement, the revisions to participants economic forecasts and Chairman Bernanke’s press conference.

"The wording of the statement will be scrutinised closely for any changes, particularly the passages on QE. The forecasts are unlikely to change significantly, although inflation should be lower in the near-term.

"Mr Bernanke faces a potentially challenging press conference. He will want if possible to calm markets, but given recent data it will be difficult for him to play down the possibility that tapering will start some time in the second half of the year.

"What seems likely is that he will emphasise the distinction between tapering QE, which merely means reducing the amount of additional stimulus, and an actual tightening in policy.

"A hike in interest rates would represent the latter and Bernanke is likely to emphasise that he will want to see a considerable improvement in economic conditions before this becomes a serious option."