Today would normally be a good test for market motivations.   We have been able to plainly see that Ukraine-related headlines can directly affect domestic bond markets.  At the same time, most of the domestic economic data has had little to no effect.  The FOMC Announcement (today at 2pm)--being one of the market events most capable of inspiring movement--would therefor be a good candidate to assist in determining the allocation of market focus (between 'home' and 'abroad').

But this instance of the FOMC Announcement isn't likely to play that role.  Why?

First of all, there is perhaps more universal consensus now regarding the tapering outlook as there ever has been.  That we will see another $10bln reduction in asset purchases is as close to a certainty as market events in the future can come.  It will surprise no one when it happens, even the infinitesimally small minority saying the amount will change (I don't actually know who is saying that, but the latest Reuters Survey didn't show 100 per cent of respondents in the $10bln camp, so what I'm saying is that anyone not saying $10bln is simply saying that and cannot possibly be surprised when it happens).

The next big consideration for markets when it comes to the Fed is the Fed Funds Rate.  A rate hike has  been off the radar 2-5 years depending on how you look at it, but the 'distant future' mindset has shown some signs of breaking down recently, especially when the Minutes from the last FOMC meeting showed some members saying the rate hike should happen sooner.

In times like those, it's good to remember that there have always been quacks on the Fed board.  The recent release of the full 2008 transcripts show these same FOMC members now calling for early rate hikes were the same ones with comically thick blinders on in 2008.  They're a minority within the voting body.  No matter how you look at it, the voting majority is not in favor of accelerating a rate hike.  Rest assured there will be months and months of build up to that decision, with more moderate Fed members hinting at it before the possibility ever materializes.

Speaking of hints from Fed members, a few have been dropped in the past month and change.

Bullard: Fed will have to make more qualitative judgements on when to raise rates in light of 6.6pct unemployment

Williams: New guidance should be qualitative and focus on reacting to economic developments

Lockhart: Prefer a more qualitative framework for the Fed's forward guidance on rates.

Evans: New Forward Guidance likely to be qualitative.  fed looking for economy to grow, and an improvement in labor markets.

See if you can spot the common theme there...

So we know that there's a very good chance today's Announcement contains a shift toward qualitative guidance.  However the Fed goes about this probably matters very little.  When the unemployment rate recently barreled dangerously close to their 6.5% threshold, no one thought for a moment that they'd hike rates. 

What can they really offer that would be new and different?  Tapering is on track at $10bln a meeting, guaranteed until further notice, and rates won't change before at least late 2014.  We can know this with relative certainty based on communication patterns at the Fed.  If a mid-2014 rate hike was in the cards, the awareness campaign would have already begun.

What does all this mean for MBS and mortgage rates?  First, don't expect big things from the FOMC today.  It's not impossible, but unlikely.   Second, don't be surprised to see counterintuitive movement in bond markets continue to be driven by geopolitical risk.  We'll need meatier, less predictable economic data to truly proctor the "home" vs "abroad" test.  Ukraine has already won for today, if they show up.