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Investors await the Federal Open Market Committee statement and press conference from Janet Yellen later on Wednesday. In the space of three weeks the bond market has swung from downplaying a March policy tightening to expecting a quarter-point shift in the overnight Fed funds band to 0.75 per cent to 1 per cent today.

Now, the market is looking at whether the central bank will suggest a faster pace of tightening beckons this year. Beyond the tone of the policy statement, traders will focus on the latest interest rate forecasts from Fed officials, as expressed via the dot plot.

Marc Chandler at Brown Brothers Harriman says: “Investors will quickly look past a 25 basis point hike. Indeed, the market will be looking for clues on the timing of the next one.’’

He expects the Fed will lean towards a June tightening. “Our view is also informed by indications that the Fed’s leadership has grown more confident of the resilience of the US economy and is no longer looking for confirmation.’’

John Brady at RJ O’Brien in Chicago says there is a risk of the median dot plot shifting to “four rate hikes this year, with the idea being the FOMC moving to a quarterly rate hiking cycle that of course remains data-dependent.’’

He adds that thanks to the prospect of significant fiscal stimulus this year, “the Fed is now in a reactive mode rather than a policy-setting-mode’’.

Also of note, real interest rates have accompanied the recent climb in nominal 10-year yields to a 33 month peak of 2.62 per cent. The rise in real yields – adjusted for inflation – suggests the bond market is becoming worried about the prospect of a stronger economy.

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