FOMC Preview: Rate Hikes On The Horizon?

The Federal Open Market Committee begins its two-day meeting on Tuesday, followed by a statement at 2:00 p.m. ET on Wednesday. No press conference is scheduled after the statement is released.

While few expect the Fed to raise rates at this meeting, economists will be examining the policy statement closely, looking for clues into whether the Fed is more likely to raise rates in September or wait until early 2016.

Fed Chairwoman Janet Yellen told Congress in mid-July at the Senate Banking Committee meeting that the economy "cannot only tolerate but needs higher rates," although she did not pinpoint the timing of the first rate increase.

Related Link: Rate Hikes, China And More: What The FOMC Will Be Discussing This Week

While some economists think the Fed might signal more hawkish tones, most think the central bank will remain silent and maintain the flexibility to be more data dependent. Josh Shapiro, chief economist at MFR Inc. said, "They won't want to paint themselves into a corner."

Michael Gregory of BMO Capital thinks the Fed statement is likely to be identical to the June statement, with perhaps a slightly more upbeat view of the economy.

While Goldman Sachs thinks the first rate hike will be in September, Dawsey goes on to say that "the FOMC will want to preserve optionality at the June meeting, and there is still a significant probability that the hiking cycle will not begin until December or later."

Goldman Sachs economist Kris Dawsey said in a note, "The expected date of the first hike in the Fed Funds rate is closer than it has been at any point so far in the recovery, As a result, the signal from the June FOMC meeting will be especially important."