Market Insider

Why Fed could rock market no matter what it does

Traders on the floor of the New York Stock Exchange
Scott Eells | Bloomberg | Getty Images

No matter what the Federal Reserve does, traders expect a volatile week ahead.

At its meeting Tuesday and Wednesday, the Fed is expected to discuss removing some of the extreme stimulus it has provided because the economy is improving and its continuous asset purchases may no longer be helping. Whether it acts to slow those purchases is yet to be seen, but that Fed watchers and traders are so widely divided on what it may do raises the odds for a volatile market reaction.

"The fact the Fed blindsided everyone in September makes it more likely we'll have a volatile reaction because nobody's going to have a large bias or position ahead of this," said Ian Lyngen, senior Treasury strategist at CRT Capital. If the Fed announces tapering, he expects a quick, temporary move up in the 10-year yield to above 3 percent.