MBS Day Ahead: Market Momentum vs FOMC Announcement

Today's FOMC Announcement at 2pm is a bit of a puzzler, because it has the capability to be one of the more important recent announcements.  One reason for this is that the Fed tends to "go big" when there's an announcement followed by a Yellen press conference.  Today's is.  The other reason is the possibility that the Fed drops the "considerable time" verbiage used to refer to how long rates would remain low after the end of asset purchases.

Now for the biggest Fed-related question: if they do drop the "considerable time" verbiage, would anyone care?  It's not like the time frame they've been referencing is that far away (mid-2015).  And it's not like anyone should be too surprised that we're progressing toward market metrics that justify that--at least in terms of employment (good luck fighting inflation anyway... they might as well give up, and probably will). 

In fact, that last little quip is important because the Fed could indeed add verbiage to increase the policy focus on the Employment part of their mandate and minimize the inflation focus.  That would be a tacit suggestion that the rate hike outlook is accelerated, and might serve as a wake up call to anyone trading as if the Fed will hold off on the rate hike simply due to a lack of inflation.

The wildest wild card, however, is whether and how the Fed responds to recent market drama.  What's the best thing that could happen to all the troubled market sectors reeling from a strong dollar?  Of course the Fed wouldn't dare announce any more asset purchases, but a statement that's simply more accommodative than expected could go a long way in calming global markets.  Don't repeat this, and knock on wood if you do, but that sounds like a win-win for Treasuries and MBS.  The only way to lose is if the broader global market "risk-off" trade happens to reverse in a big way.