FOMC Preview: Rate Hike On The Horizon?

All eyes will be on the two day Federal Open Market Committee (FOMC) policy meeting, which begins this afternoon.

The Fed will release its statement at 2pm ET on Wednesday, followed by a 2:30 pm ET press conference with Chairwoman Janet Yellen, during with the Chairwoman will give additional insights into the assessment of the economy and hint at the next steps for the Federal Reserve.

FOMC members will also release updated economic forecasts. via the Dot Plot.

Expectations for an announced rate hike at this meeting are low, with only 2 out of 70 economists polled by Reuters anticipating an increase. Many analysts, including those at Goldman Sachs and BofA/Merrill, are looking for the Fed to lay the groundwork for a September rate increase. This would mark the first rate increase since July 2006.

Related Link: Goldman Sachs: Fed Might Hold Off Rate Hike To December

Goldman Sachs economist Kris Dawsey expects the meeting's "overarching message" will be that a rate hike is coming in September. She also expects the Fed's outlook for the economy will be downgraded somewhat. As a result, she feels the signal from this meeting will be especially important.

BofA/Merrill Lynch also feels that a June Fed rate hike is very unlikely, but that the FOMC will keep open the option for liftoff in September. They also believe the Dot Plot forecast will show two rate hikes this year and four in 2016. Any concerns about low inflation expressed by Chairwoman Yellen would be notable, according to BofA/Merrill Lynch.

Eurodollar futures contracts are also looking for rates to rise later in the year, currently pricing in 3-month rates in the US rising from 0.01 percent today to 0.65 percent by year-end, and to 1.54 percent by end of 2016.