All Eyes on Yellen

The event we've been waiting for all week is finally upon us and all eyes will now be on Janet Yellen to see if she can deliver what investors so desperately crave, clarity on the near-term path of interest rates.

At the start of the year, the Fed expected to raise interest rates four times in 2016, something even at the time investors thought was quite far-fetched. Eight months on and we're still awaiting the first of these and if it does come, even a second this year looks extremely unlikely. The problem we've had all year is one of credibility, the Fed indicates one thing and the market does what it wants because it has no faith in the central bank to do as it claims. So far, this has proven to be quite prudent but it has also backed the Fed into a corner because rather than lead the markets, it has been left following in its tracks.

In the Fed's defence, the year got off to a shocking start – triggered by the yuan devaluation - which called into question whether the time is right for the Fed to be tightening monetary policy. Once this settled down and the data improved again, it had Brexit to contend with and now it has the Presidential election to consider. While this sounds like a lot of excuses, it does go to show the kind of complicated global economic environment that the Fed is having to steer through.

That said, throughout this process the Fed has been repeatedly guilty of poorly guiding the markets which has left us in a situation where there's a huge amount of confusion about when the Fed will make its next move. Some of the more recent commentary from officials such as vice Chair Stanley Fischer and William Dudley would suggest a rate hike is just around the corner. Should Yellen send a similar message today then I would expect December to become increasingly priced in.
Unfortunately, I wouldn't be surprised if Yellen kept to same boring script of data dependency and offer little insight into how markets should position themselves.

We'll get a little more data ahead of Yellen's appearance which will provide a little more insight into the US economy. GDP and inflation data will be released prior to the speech and ahead of the US open and while neither will be a game changer, they will offer further insight into the state of the US economy in two areas that the Fed monitors extremely closely, particularly inflation.