Tuesday's batch of economic data, included August Housing Starts, August Import/Export Prices, and the Current Account Balance for the second quarter.
On the M&A front, Thyssenkrupp rose more than 2 percent after it and India's Tata Steel agreed to merge their European steel operations to create the continent's No.2 steelmaker.
"Despite the 1 percent total increase in the Fed funds over the last 19 months, money market and short-term CD rates barely budged", Pan writes. Janwillem Acket, Chief Economist at Julius Baer expects the Fed to be in no hurry to continue normalising interest rates. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.
There is general agreement among Fed officials that low inflation is transitory. A decline in estimates of this measure would help Yellen to explain why the steep drop in the jobless rate had failed to spur inflation as expected so far. However, there is less consensus on what is causing low inflation or how long it will last. Inflation has been the key economic factor keeping the Fed from pulling the trigger, so it will be particularly important for investors to get the Fed's latest thinking on that issue.
"We see the odds of a summer Fed rate increase rising if United States data this week show solid job gains, rising wages and an inflation pick-up", wrote Richard Turnill, BlackRock's global strategist. But economic growth and low unemployment of 4.4 percent are saying it should.
As the taper has been consensus view for some time now, the other big thing to watch will be what the 2020 economic and Fed funds projections for the first time, known as the "dots" of FOMC members. In reality, their internal discussions are a matter of when, not if, the next hike will be.
In November 2008, in the midst of the financial crisis, former Fed Vice Chair Alan Blinder says, the central bank had already exhausted its main tool to fight recessions.
Given the Fed's statement at its June 2017 policy meeting, the balance sheet reduction should begin gradually at USD 10 billion per month, i.e.by no longer reinvesting each month a volume of USD 6 billion of maturing Treasuries and USD 4 billion of maturing agency bonds, such as mortgage-backed securities.
Some Fed officials have warned against raising interest rates until inflation - which reflects the prices of everything from meat and cheese to houses and cars - meets the goal of 2% that they consider healthy for the economy. However, the important bit will be whether they maintain their commitment to more gradual rate rises.
Securities lenders that are already active in the market may also benefit from higher rates as the Fed steps back.
"A week ago the market put little more than a 30% probability of a December Fed hike". The Fed's disconnect with the financial markets is not unusual.
The Federal Reserve moved to dismantle a pillar of crisis-era support for the world's biggest economy and stuck with its forecast to raise interest rates again this year, saying hurricane damage won't derail an otherwise healthy expansion. Unfortunately, it does highlight a credibility gap in recent years for the Fed to accurately predict inflationary outcomes. Let's hope that confidence proves correct.