By Alyce Andres-Frantz

CHICAGO (MNI) - Chief economists at the primary dealerships said they expect there will be little to surprise in the afternoon FOMC statement on the rates front and the assessment of the economy but the Federal Open Market Committee may take the opportunity to clarify its long-term goals for asset purchase program goals scheduled to finish this year.

While some are hoping for some concrete items from the FOMC, it could be the case that a somewhat vanilla FOMC announcement could be followed up at a later date with more information on it quantitative easing intents, which would be less market disruptive.

Sources reminded that when instituting QE the Fed generally waited just one day to do so, to inform other central banks of their intentions.

It is also worth noting that some changes to QE were announced by the Fed Board, which meets every other Monday although, if necessary, the Board members can convene their own meeting within an FOMC gathering. The Fed Board's last meeting was on Sep 21 and the next is scheduled for October 5.

The last FOMC was August 11-12, and on the following Monday, Aug. 17, the board announced it was extending the Term Asset Backed Loan Facility (TALF). On Wednesday of that same week, the Board announced margins/collateral changes.

The consensus among chief economists at the primary dealerships was that the Fed may "taper off" its MBS buying programs but extend the such programs, announcing the extension either now or at the November FOMC. Generally, dealers thought the MBS program if extended, would cease in Q1 2010. Additionally, there also is some risk the Fed comments on reverse repos, sources said.

As it currently stands, the New York Fed can buy up to $300 billion Treasuries through the end of October. To date they have purchased $285.2 billion. In Agencies, the Fed can buy up to $200 billion Agencies through the end of the year. To date they have purchased $125.3 billion.

As for Agency MBS Passthroughs, the Fed has stated it could buy up to a maximum of $1.25 trillion MBS by the end of the year. To date, the Fed has bought or committed to buy $811.2 billion worth according to last Thursday's H.4.1. balance sheet report.

Neal Soss, chief economist at Credit Suisse said the "Fed may signal a slowdown in the mortgage purchase program. This would parallel the announcement after the last FOMC meeting of a slowdown in the Treasury purchase program," Soss said.

"Such announcements help to address the concerns of the FOMC's hawks without doing any particular damage to the markets," Soss said.

In terms of QE and the MBS programs, Soss said "There is no need now to change the expected size of the program. If the financial system doesn't seem to need the full amount then a slower purchase program allows the Fed to stop before committing its balance sheet to the full amount."

However, "If the financial system still needs the help next year the FOMC can always up the program. We expect the Fed to buy what it has already committed to buy and stop there but there is no need for them to speculate about this at this moment," Soss said.

George Goncalves, chief strategist at Cantor said "we believe that Sept statement or a message by FRB (in the) next day or so would be a good time to extend the MBS program out to March 2010."

Bob Mellman at JPMorgan, "in terms of QE, we think that the first change will be letting the purchase programs run off, and see how the mortgage market is affected. In our view, changes in the balance sheet after that will be passive although the Fed can use repos to drain excess reserves if it feels that is appropriate."

Furthermore, Mellman said "We think that the Fed will taper off the amount of purchases but extend the limit so that they buy the announced program in full. And we think that they will leave the door open for more purchases."

Joe Lavorgna, chief economist at Deutsche Bank said that the Fed "Fed won't begin shrinking the balance sheet until the second half of next year."

On MBS purchases, LaVorgna said "the Fed will buy the full amount and may extend it further. It depends on what mortgage rates do and how strong the economy is."

Dean Maki, an economist at Barclays said "We expect the Fed to announce that it will extend the agency MBS and agency debt programs through Q1 10, but not to expand the size of the programs. We think the Fed will want to taper off these purchases in the same way it did with the Treasury buying program."

Maki also expects "the Treasury buying program to end on schedule."

Steve Ricchiuto, Mizuho Securities said "Although the Committee opted to extend the Treasury purchase program by one month at the August meeting, the MBS program is likely to be extended by three months at either the upcoming meeting or that scheduled for November. No change is expected in the Agency purchase program."

Ricchiuto said "Any QE changes will be fine-tuning, and a big question is whether Fed will mention "procedures it intends to utilize to drain reserves from the banking system when the time comes."

Goldman Sachs economists said "no changes are necessary or likely (in Fed asset buys) until the November meeting, but would not resist too strongly the idea such an announcement might be made this time." Fed might also reference reverse repos in a separate statement.

Craig Wright, an economist at RBC said "QE is expected to remain in place well into 2010. Some winding down will happen first via the markets before the Fed has to take steps to wind anything down."

As for MBS, "As long as the recovery is in question the Fed will leave all options open, including the MBS purchase plan," Wright said.

Meanwhile, the general consensus among the chief economists at the primary dealers was that the Fed's assessment of the U.S. economy should be more upbeat, yet not be accompanied by any changes in interest rates.

** Market News International Chicago Bureau: 708-784-1849 **