In the global dance of central bankers, it's the European Central Bank's turn to take to the floor.
The ECB on Thursday kicks off a trio of major central bank meetings, and it is expected to cut rates further into negative territory and boost asset purchases, in an effort to spark euro zone inflation and encourage growth. The Bank of Japan then meets, and while it is not projected to take action Tuesday, it is expected to talk up its existing programs and try to make markets more comfortable with its move to negative yields.
The Fed then gathers Tuesday and Wednesday, ending its meeting with a statement and new forecasts for the economy and interest rates. Fed Chair Janet Yellen also holds a news conference. The U.S. central bank could sit on the sidelines this time around, but it should give important guidance about its move toward tightening as the other two banks go the opposite direction.
While the Fed is not expected to take action on interest rates, the market is hanging on the prospect of new forecasts from Fed officials, which are presented in a chart known as the "dot plot." That graphic has been at odds with market views, showing four rate hikes this year, to the market's one rise by December.
"Changing the 'dot plot' is capitulation on the part of the Fed," said Marc Chandler, head of currency strategy at Brown Brothers Harriman. He expects the Fed to lower its forecast to two hikes for this year, but others project it could forecast three.
"It's a central bank-a-palooza. In many ways the Fed has the benefit of going last in the sequence of central bank activity," said George Goncalves, head of rate strategy at Nomura. "If the ECB does it right, and the BOJ threads the needle enough to make sure people don't get confused, the Fed can come in and be reasonable."
The ECB is expected to slice 10 basis points off of its already negative deposit rate, taking it to a negative 0.40 percent. Chandler said the sense is that it could also extend its asset-buying program, possibly to June 2017 and increase the amount by 10 billion euros ($11 billion) a month. The ECB rate decision is expected at 7:45 a.m. ET, and the institution's president, Mario Draghi, speaks at 8:30 a.m. ET.
Goncalves said if the ECB then sends a dovish, but confident message at its news conference, markets should take it well. "That would create a risk-on move into next week which would take some pressure off of the Fed," he said.
The ECB and BOJ have both stumbled at recent meetings, with the ECB failing to provide the easing markets expected at its December meeting.
"I think that everyone's on edge because of what has been happening lately with central banks not being able to hit the mark and delivering what markets have been expecting," Goncalves said.
The Bank of Japan's move on negative yields was a surprise, and the yen has defied the action by moving higher ever since. "They'll try to sound dovish," said Robert Sinche, global strategist at Amherst Pierpont Securities. "I think they're struggling to get the currency weaker."
Chandler said the G-20's criticism of Japan's negative yields, as a move toward currency manipulation, may keep the BOJ from acting at this meeting, but it could move in April to cut deeper into negative territory.
"I think it's too soon to expect Japan to do anything," he said, adding there is talk that it could delay an April increase in its value added tax.
But it is unlikely to expand QE, given the wild swings in its government bonds, Chandler said. The 30-year JGB yield fell sharply Tuesday, losing 20 basis points, but that full move reversed Wednesday.
While the Fed is not going to take new policy steps, there could be an important change in its message.
"To me, the real thing that happened is inflation expectations," said Chandler. "Core CPI inflation and core PCE picked up. Inflation expectations picked up. Another month would make the Fed feel more comfortable," he said.
Inflation has been the side of the Fed's dual mandate that has been lagging. As U.S. data have picked up so have expectations for a rate hike. The futures market, as of this week, is pricing in one rate rise by the end of the year, after forecasting the first one for 2017.
While the Fed is expected to lower the number of interest rate hikes in its forecast, it is also projected to emphasize that it is watching the economy and financial markets. But it could also sound less dovish, as it maintains expectations for higher rates.
"I think they just kick the can down the road. There's no sign yet of volatility in markets impacting the economy but there's also no hurry in raising rates further. We'll just wait and see how the data unfolds over the months ahead," Sinche said.
Ethan Harris, co-head of global economics research at Bank of America Merrill Lynch, said he's been expecting a June rate hike, as the first for this year.
Even though markets have calmed, and credit conditions have improved, the consensus is the Fed will not move in March. But Goncalves said with the market view that inflation is picking up, it could signal that every meeting is possible and that would put April in play. June has seemed more likely because it is another gathering followed by new forecasts and a news briefing.
"The problem for the Fed is they can't tell whether the markets are improving because the markets don't expect them to hike or the markets are improving because they're in fundamentally better shape," said Harris.
Risk markets have headed higher with oil prices in the last several weeks, and the rise in commodities prices has added to the view that higher inflation could be on the horizon.
"We've thought the first hike would be in June. The Fed would wait to see the economy develop a bit further, get more convincing evidence that inflation has turned," Harris said. "For the Fed it would be very awkward to hike at the March meeting. They haven't really prepared the market for it."
Besides the ECB meeting, there are U.S. jobless claims data at 8:30 a.m. ET. The federal budget is released at 2 p.m. Earnings are expected from Dollar General, Party City, Vail Resorts and El Pollo Loco.