What the Fed will mean for markets this week

The Federal Open Market Committee is meeting this week, and many expect the Fed to taper its quantiative easing program by another $10 billion, bringing the total amount of QE down to $65 billion per month. And while tapering seemed to be atop nearly everyone's list of concerns in 2013, traders expect the market reaction to the announcement of a further Fed taper to be muted.

"I do believe the Fed intends to announce a continuation of the taper next week, and I don't think it will be particularly shocking to the markets," Jim Iuorio of TJM Institutional Services said Friday, reflecting the views of many traders.

The two-day meeting starts Tuesday. A statement will be released Wednesday, followed by a news conference. This will be the final meeting chaired by Ben Bernanke, with Janet Yellen taking over at the beginning of February.

The Fed announced its first reduction of asset purchases in its December meeting, following months of speculation about when it would start to wind down its $85 billion program. The Fed also noted in December that it would watch employment data closely as it decides upon the future of its asset purchases. Although the December employment report showed that the economy created only 74,000 jobs, economists generally expect the Fed to cut down purchases by another $10 billion anyway.

(Read more: The Fed is trapped; buy gold now, Peter Schiff says)

Ben Bernanke and Janet Yellen
Getty Images
Ben Bernanke and Janet Yellen

That report was "an anomoly," said Gus Faucher, senior economist at PNC Financial Services. "All the other stuff would seem to indicate that the economy continues to do well and the job market is improving. The 74,000 jobs in December doesn't represent what's truly going on in the economy, so given that, I think the FOMC will be reducing purchases."

Faucher expects the Fed to cut down long-term Treasury purchases and mortgage-backed securities purchases by $5 billion each, just as it did in December.

"We do think the Fed is keeping a simple policy of tapering at a moderate and consistent pace—so $10 billion per meeting," said George Goncalves, head of U.S. rates strategy at Nomura. He added, however, that the recent weakness in emerging markets and U.S. stocks could make the decision somewhat less of a sure thing.

(Read more: Cashin: Could selloff cause Fed to slow taper?)

Still, tapering might not exactly be the market's top concern right now, anyway.

"U.S. Treasurys are not focused on the Fed at this juncture," Goncalves wrote to CNBC.com. "It's all about position squaring/short-covering and flight to quality. Fed policy is a distant third."

—By CNBC's Alex Rosenberg. Follow him on Twitter: @CNBCAlex.

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