Tiny Taper

In all likelihood, we will get the tiny taper from the FOMC meeting today.  I have yet to see a meeting since Bernanke has become Fed chairman where he was more hawkish than expected with his actions.  Now he has talked tighter on rare occasion, more than the market expected, but he has never acted tighter than expected.  NEVER.

So you have that historical backdrop to this meeting, so while I do expect a tiny taper of $10B from the $85B/month, I cannot rule out the Fed putting on their skirts and doing nothing.  I would put the odds of that at about 30%, which is higher than the market is pricing in.   I put 65% odds of the Fed doing $10B/month, and 5% odds of $15B/month.  The odds are zero of them doing anything more than $15B IMO.

So based on the probabilities that I see here, you have a 30% chance of a huge spike up after the meeting, which would put the ES at 1720 in less than hour.  And you have a 65% chance of a moderate rise to 1705-1710 after some initial back and forth trading.  And a 5% chance of a moderate fall to about 1690-1695.  In any of those cases, I expect the VIX to fall after the announcement.   The VIX is too high considering the amount of volatility we have been experiencing, which is minimal.