Communication on Fed rates key

"Our analysis suggests that communication about when the Fed will begin to raise the federal funds rate from its near-zero level will be more important than signals about the precise timing of the end of QE3," San Francisco Fed senior economist Vasco Curdia and New York Fed senior economist Andrea Ferrero wrote.

- from latest SF Fed Economic letter.

Interesting conclusion but one that should be expected. The link between LSAP and rates is not always clear, so just ending QE3 may not tell us what will happen to short-rates. Of course, it is expected that the short rates will go up but the magnitude of the change is unclear. On the other hand, forward guidance on when rates will increase will send markets a clearer signal on rates.