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Fed likely to soldier forth with monetary easing despite reinvigorated Cypriot risk

FXstreet.com (Barcelona) - The Federal Reserve looks primed to continue its USD $85B monthly bond-buying stimulus program, despite the generally improving U.S. economic data as of late. More interestingly for investors is the newest specter of risk, i.e. the bourgeoning situation in Cyprus, in which the euro zone crisis reminds officials of a volatile global environment.

Indeed, as it wraps up a two-day meeting on Wednesday, the U.S. central bank's policy-setting Federal Open Market Committee will continue debating the potential costs and ramifications of quantitative easing, including the acute possibility its easy money policies will actually inflate and propagate asset market bubbles – he S&P and Dow are already at record highs.

However, Fed Chairman Ben Bernanke has reiterated he still firmly believes the benefits are palpable, and the risks worth taking. "The only change in the Fed statement we expect is a nod to the economy being better than what the FOMC saw six weeks ago," noted Steve Blitz, chief economist at ITG. "This nod should only sharpen divisions within the FOMC about whether it's time to give a hint of the potential of a promise for the Fed to begin tailing off asset purchases sometime sooner rather than later," he said.

The Fed will release its policy statement, along with a new set of economic projections, at 18:00 GMT and Bernanke will get a chance to answer reporters' questions at a quarterly news briefing a half hour later.

In particular, one key indicator that bolstered confidence in the U.S. recovery was a February employment report showing a lower jobless rate, down -0.2% at 7.7%, and the creation of 236,000 net new jobs. If that pace of job growth can be sustained for a few months, the Fed might be able to claim substantial progress has been made toward an improved employment outlook - its own stated prerequisite for the cessation of bond buys.

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