The US Federal Open Market Committee is due to meet today. The meeting, which is not scheduled to have an accompanying press conference, is expected to be somewhat uneventful to say the least, with Yellen expected to indicate possible slight adjustments on the current state of the economic situation in its policy statement. The markets will look out for key phrases most notably “decisive evidence” in relation to the conviction of incoming economic data which could ultimately propel FOMC members to persistently point towards a December rate hike.

We do expect reference to recent market developments, particularly the evolvement of the Greek impasse as well as the adverse economic climate in China and how the FOMC expect such events to impact both global as well as US growth prospects. Despite this, we would next expect any major tweaks to the last FOMC statement.

In a recent survey carried out by the Wall Street Journal, over 80% of the respondents (economists) still view September as a likely target date for lift-off despite the fact that the minutes of the June meeting revealed that officials remained concerned (back that, at the time where Chinese equity markets were collapsing and Greek was on the brink of an exit from the single currency region) about the possibility of global financial volatility.

However, the relative calmness of financial markets over recent weeks suggests that a global catastrophe seems to have been averted. Also, Yellen reiterated in her congressional testimony that she expected the first rate hike to come in 2015, highlighting the fact that an earlier rate hike might prevent the Fed from having to raise rates more aggressively at a later stage.

September? December? Does it really matter when? I would tend to say not really – the major focus, as Yellen has stated on several occasions, will thus not be the timing of the first rate hike but more the frequency at which the subsequent rate hikes come which will determine whether the Fed was spot on in the timing of increasing rates. Only time will tell.

What is certain is that the lack of a convincing increase in wage growth will likely translate in the Fed being slower to act (raise rates) than the market currently expects but if core inflation (returning to the preferred 2.0% level) and wage growth surprise to the upside, the Fed could be more forthcoming in its rate hikes. But we do not expect this to materialise any time soon. Whilst the unemployment rate has persisted in its downward trajectory, the Fed’s Labour Market Conditions Index, seemingly suggests that working conditions have in fact worsened over the past 4 months, with this being one of the key indicators which could suggest the course of the Fed’s monetary policy in the short term.

Having said this, the Committee has made it clear that the US economy, sooner or later, will be in need of some form of policy tightening, and this has been evidenced by the recent repricing of the US Treasury Yield curve at the shorter segment of the curve.