All Ears Tuned to Fed Language

With the U.S. Federal Reserve expected to leave interest rates on hold this week, the market will be focusing on policymakers for clear signals on when the central bank will make its first interest rate hike in nearly a decade.  World shares ended last week on a muted note as Greece’s situation took a turn for the worse when the International Monetary Fund’s delegation walked out of negotiations in Brussels citing “major differences” with Athens over how to save the country from bankruptcy.

The European Union has also been telling Greek Prime Minister Alexis Tsipras in more strident terms to stop gambling with his cash-strapped country’s future and make the big decisions needed to avert a potentially devastating default.  For Fed watchers, the main point of interest will be any change in the nuances of bank Chair Janet Yellen’s language after the central bank’s announcement.

“We still suspect that Wednesday will be important in terms of communication, given that it is a press conference meeting,” said Philip Shaw, chief economist at Investec.  Wall Street’s top bond dealers, who just three months ago had a June move pencilled in, now expect the Fed to begin raising rates in September, followed by another hike before the end of the year.


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