US Federal Reserve meetings that don’t see economic projections revised or a press conference from Fed Chair Janet Yellen, such as the one due Wednesday afternoon can be quickly forgotten. There are already some foregone conclusions about what will happen of course; every analyst expects that the Federal Reserve will reduce its monthly asset purchases by the forecasted $10bn to take the total down to $25bn – the QE3 plan originally spent $85bn a month.

However, since the last meeting we have seen a very strong payrolls announcement that we believe the Federal Reserve will comment on. A fortnight ago Janet Yellen, in testimony to Congress amended her tone when asked about jobs by saying; “If the labor market continues to improve more quickly than anticipated… then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned”. Given she was speaking in her capacity as Fed Chair and not giving personal feelings then it seems natural that a similar line will be taken in the comments that accompany Wednesday’s decision.

Despite a strong month of US data, shifting expectations has proved difficult. The market has of course been burnt before when trying to accurately predict a normalising of monetary policy. Dollar markets and yields are refusing to price in any move before Q3 2015 at the moment and any suggestion of a Fed surprise will trigger a replay of the ‘taper tantrum’ last year. US yields moved higher and the dollar strengthened in response to a hint from then Fed Chair Ben Bernanke that the Fed would end its asset purchase program in May. They instead waited until December. As we have written in the past, the communication of a shift in the policy dynamic will need to be perfect to prevent a shock in USD markets.

Wednesday is actually a bit of a marquee day for the US economy with the publication of the first reading of US GDP for Q2. The readout of how much the US economy grew in April, May and June is expected at 3.1% annualized. We saw just how wildly the actual data differed from expectations in Q1 – consensus expectations sat at 1.0% before a print of 0.1% that was eventually revised down to a 2.9% fall. A miss against the market’s expectations showing an economy that stagnated in the first half of the year may stay plans for an upgrade to guidance.