The FOMC's 2-day meeting begins today, with a decision tomorrow around 2:15 pm EST. While the disappointing data in recent weeks raise the prospect of action by the Federal Reserve, most investors appear to be expecting a tweak in the statement to recognize the down shift in the economy and the forward looking guidance, with a action more likely in September than August.
The market has been adjusting expectations for Fed policy since at least the disappointing June jobs data reported in early July. Since then the implied yield on the Dec 2012 and Dec 2013 Eurodollar futures contract have fallen 15 bp (to about 35.5 bp and 43 bp respectively). The implied yield on the Dec 2014 contract has fallen to 18.5 bp to 59.5 bp. The Fed funds futures contract do not imply an average effective Fed funds rate above 20 bp until Aug 2014.