The Federal Reserve will release its policy statement on Wednesday, and the decision could heavily impact stocks, bonds and gold. The tricky part is that while most expect the Fed to taper quantitative easing by another $10 billion, the outlook for guidance on the federal funds rate is significantly cloudier.
"What the Fed says, and the language contained in that statement, will be imperative for us moving forward," said Jeff Kilburg, CEO of KKM Financial. "The Fed has been driving the market for so long, and it continues to drive the market."
The Fed meeting starts on Tuesday, and the Federal Open Market Committee is set to release its policy statement on Wednesday at 2:00 p.m. ET. The real excitement could come a bit later that afternoon, when Janet Yellen gives her first press conference as Fed chair.
Most economists expect the Fed to taper asset purchases by another $10 billion, reducing the size of quantitative easing to $55 billion per month.
"They're going to taper another 10—that's almost a given. In fact, it is a given," said Deutche Bank's chief U.S. economist, Joseph LaVorgna.
"You can take that to the bank. That's not going to change," agreed David Robin, co-head of financial futures and options at Newedge.
But when it comes to the federal funds rate, the question of what the Fed will do becomes more complicated. In the FOMC's previous statement, the Fed reiterated that it would keep that key rate ultralow as long as inflation is not projected to rise more than half a percentage point above 2 percent, and the unemployment rate remains above 6.5 percent.
The Fed does go on to clarify that it will be appropriate to keep that rate between 0 and 0.25 percent even after the unemployment rate falls below 6.5 percent. But with unemployment just above that level now, the Fed may look to update its guidance.
In fact, LaVorgna says that the Fed will abandon its quantitative guidance completely.
"They're going to take a mulligan on the quantitative language and go qualitative—go old school," LaVorgna predicted. "They will provide a range of factors and leave it to the market to figure out what will matter most."