Investors are gearing up for a massive week for the markets. Between the 138 S&P 500 companies scheduled to report earnings, Wednesday's Q2 GDP report and Friday's employment report, the data watchers will have plenty to chew on. But the key event could actually be one that investors are paying less attention to: Wednesday's Federal Reserve announcement.
The policy changes announced on Wednesday are expected to be few. It is all but guaranteed that the Fed will reduce quantitative easing by another $10 billion, dropping the size of the asset purchasing program down to $25 billion per month. Further, investors got a chance to hear Fed Chair Janet Yellen's take on the widely watched federal funds rate just last week when she testified before Congress.
"It's rare these days to have a week that includes an FOMC meeting where it is not the headliner, but that's exactly the case in the coming week," RBC Capital Markets' chief U.S. economist, Tom Porcelli, wrote in a Friday note. "This may be one of the more unanticipated meetings we've had in quite a while."
"In terms of their economic assessments, they don't have to tweak anything at all, because everything still holds," echoed Aneta Markowska, chief U.S. economist at Societe Generale, in a phone interview. "They could almost just repeat their last statement verbatim."
On the other hand, some contend that Thursday's employment data put the Fed in a somewhat tight position. Initial jobless claims fell to 284,000 in the week ended July 19, which is the lowest level since February 2006. While the week-to-week data can be noisy, the smoothed four-week moving average dropped to the lowest level in seven years.
In fact, the reading led Peter Boockvar of The Lindsey Group (a seasoned Fed critic) to proclaim that "the Fed is in denial," given that the central bank "still won't acknowledge that zero interest rates, let alone QE, are way out of whack with the reality of economic data."