What to expect from the Fed this week - ING

"An upbeat Fed this week is unlikely to reduce market skepticism over future rate hikes," argues James Knightley, Senior Economist at ING.

Key quotes:

"We expect the Fed to stay relatively upbeat this week, despite mixed economic data of late. But markets will be particularly interested on the Fed’s thoughts on recent sluggish inflation readings, which has caused a large divide between the Fed’s rate hike projections (four hikes by the end of 2018) and market expectations (who are barely pricing one). We suspect the next hike won’t come until December, whilst the Fed keeps an eye on recent inflation developments. We’ll also be watching closely for any fresh hints on the timing of balance sheet reduction (we think this will be announced in September for an October start)."

"Looking further ahead, we are still forecasting two Fed rate hikes in 2018, with recent comments on asset price valuations and loose financial conditions suggesting Fed officials are broadening out their reasoning for tighter monetary policy."