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It looks like everyone and his momma are expecting the Fed to keep their policies unchanged this week.

Does that mean that the event will be a non-mover? Not necessarily!

Here are points you need to know if you’re trading the FOMC drama tomorrow at 6:00 pm GMT:

What happened last time?

In late April the Fed kept its interest rates in the 0.0% – 0.25% range and reaffirmed its commitment to using the “full range of tools” including large-scale overnight and term repo operations as well as Treasury purchases.

Fed Chairman Powell also shared his pandemic concerns, saying that it will “weigh heavily” on GDP, inflation, and employment, and pose “considerable risks” to the medium-term growth outlook.

Still, the assurance that the central bank will keep the pedal to the metal was enough to boost U.S. equities and extend the dollar’s intraweek downtrends at the time.

Twenty days after that, the meeting’s minutes revealed that “several participants” had discussed the possibility of some form of yield curve control (YCC) program.

What has the Fed done since then?

Aside from maintaining its alphabet soup of lending programs, the Fed expanded its Main Street lending program, which now enables companies to (1) borrow as low as $250K – $500K and as high as $200M – $300M, (2) extend the repayment period from 4 to 5 years, and (3) not pay principal in the first two years.

Meanwhile, members intensified discussions around a negative interest rate policy (NIRP).

In mid-May, Powell shared that “all” members had agreed that it wasn’t an ideal policy response.

But just last week, St. Louis Fed argued that the economy needs “aggressive fiscal and monetary policies” (which may include NIRP) to achieve a V-shaped recovery.

Who needs Netflix when the Fed has more plot twists, amirite?

What are markets expecting?

Not policy changes, that’s for sure. Between the rock bottom rates (ZIRP) and the recent expansion of the Main Street program, Powell and his tribe have time to see the impact of their decisions.

Instead, members will try to be optimistic enough about the economy to inspire risk-taking, but also cautious enough that markets will understand that they won’t take away the liquidity juice anytime soon.

Any other points to watch out for?

With the optimism-easy policies balance in mind, the Fed could talk about:

“Stronger” forward guidance

On providing forward guidance, saying that they’ll keep rates low in the foreseeable future may not be enough this time.

Members could stress their dovishness by (1) being more specific about how long they’ll keep rates low for or (2) hint at a yield curve control (YCC) program that would cap short-term rates.

Negative Interest Rate Policy (NIRP)

While negative interest rates would inspire risk-taking, it would also choke bank profits and maybe push them into lending less, which would derail the economic recovery.

This is why, if FOMC members are still largely against NIRP, Powell could reiterate the unlikelihood of the policy.

Likewise, members could also pencil in a rate hike in their “dot plot” projections sometime in 2022 to discourage talks of negative rates.

Economic projections

Remember that the Fed skipped publishing its projections back in March when the pandemic started affecting economic activity.

This week we’ll see just how worried members are when we see their inflation, GDP, and employment expectations. If the numbers are low enough, then Powell could repeat his calls for more fiscal stimulus.

How might the dollar react?

If Powell and his team show enough optimism and at the same time convince traders that their easy monetary policies are here to stay, then we could see the dollar extend its downtrends against its higher-yielding counterparts.

But if the Fed focuses on its economic concerns, or if traders think that the Fed is running out of bullets, then we could see risk aversion that would push the safe-haven dollar higher across the board.