Fed to deliver a 25bps hike in the policy rate

Fed is expected to deliver a 25bps hike in the policy rate, raising the target range to 0.25% to 0.50%. The market is fairly priced for this outcome, so the focus will be on the tone of the Fed's message. The consensus expectation appears to be for the Fed to deliver a dovish hike. 

The overall tone of the communiqué and the accompanying SEP are likely to be relatively hawkish, reflecting the Fed's greater confidence in the economic outlook and reinforce the path higher for rates. The tone of the post-announcement press conference, however, is likely to be balanced as Yellen delivers the more nuanced message of the "gradual" path for rates. 

Yellen's message is likely to be focused on the post-liftoff path for rates, with particular emphasis on the data-dependency of any future policy action and the expected "gradual" path forward for rates. She could also use this platform to articulate the Fed's view on the reinvestment program, which is another avenue for the Fed to send a signal of its dovish intentions. Ultimately, Yellen is expected to come across as dovish, though it is unlikely to be enough for the market to interpret the Fed's action on the day as a "dovish hike."