"When people begin anticipating inflation it doesn't do you any good anymore, because any benefit of inflation comes from the fact that you do better than you thought you were going to do." -- Paul A. Volcker

Fed Watch

FOMC policy meetings are always important to the marketplace. Investors tend to take lightly the policy meetings that stand alone, but when the Fed brings the whole dog and pony show ... well, then this becomes an event. So bring on the decision, bring on the fearless forecasts, and bring on the press conference. We have been waiting for you. Not quite like a small child on Christmas morning, but with great anticipation nonetheless. Our greatest risk today would be significant misses for May CPI, and May retail sales. Already expecting weak data for both, numbers weak enough to knock the Fed's forward-looking intent, as well as Janet Yellen's demeanor for a loop would present a danger to your portfolio for today and beyond. Here's where to place your attention.

Interest Rates

There seems to be almost no doubt that the FOMC will increase the fed funds rate by 25 basis points this afternoon to a range of 1.00% to 1.25%. This will be the second of the three rate hikes for the year that the committee implied in March, which was the last time that the Fed's economic forecasts were revised. The Fed has also implied three rate hikes per year going out as far as 2019. In March, exactly three Fed officials were below this median projection of three 2017 rate hikes. What will be of interest will be if the rapidly faltering consumer level inflation, as well as many other broadly weaker macroeconomic data-points, have shaken any other officials out of the trees. If that number grows beyond three, illustrating weakening Federal Reserve resolve regarding their collective intent, investors will pick up on this. So will the algorithms. It could get ugly.

The Statement

Speaking of the recent economic weakness, just how much of an impact will it make on the official statement? There is no doubt that inflation is moving away from target. Will the Fed appear more apprehensive on inflation? I doubt that they can simply explain away weaker energy prices by calling them transitory, mainly because they're not. If the statement is honest on inflation, then they will have to try to paint a brighter picture regarding the labor market and economic growth. That will point us back to the trajectory of interest rate policy. That hawkish trajectory, once dreaded by a marketplace craving dovishness, is now looked to for validation of an improving economy. This is serious risk right here.

Balance Sheet

Will they even go there? If they want to get the show on the road, then they better say something definitive soon. Let me put this another way. The Fed needs to have a smaller credit footprint before the next serious hiccup hits the economy. This is the only way that they can at least start out using traditional monetary policy tools before getting experimental. The Fed has been hinting over the last few months at a plan for balance sheet management that would set a fixed amount to run off of the balance sheet at maturity, not to be reinvested. That set amount would be gradually increased over time in a "tapering" type fashion.

If the balance sheet is addressed, important questions would have to be asked. If not addressed, then important questions will certainly be asked, by the media after 2:30. Traders would need to know when they planned to start, the size of said fixed amount, the target size for the balance sheet, and, most importantly: What does this mean for forward-looking interest rate policy? Personally, I think managing this risk, while simultaneously tightening interest rates in an economy that's only doing okay at best, is asking for major trouble.

Worried about how to pay for your golden years? Ken Fisher, founder of Fisher Investments, and TheStreet's Jim Cramer will tell you what you need to know in a June 21 webinar on the market trends that are shaping retirement planning today. Register here for the event, which starts at 11 a.m. ET.

This Oughta Do It

Somewhat beneath the radar this morning, the IMF (International Monetary Fund) raised their forecast for Chinese GDP for full year 2017 to 6.7% from 6.6%. If this seems, in your head like deja vu, that's probably because the IMF just increased their projections for China's 2017 GDP in April from 6.5% to that 6.6%. This was sort of an odd message, reflecting an improved headline, but cautious still. David Lipton of the IMF is quoted as saying "China has the potential to safely sustain growth over the medium term". Lipton adds: "This requires deep reforms to transition from the current growth model that relies on credit-fed investment and debt." The IMF at the same time predicts a uniform 6.4% GDP annually from 2018 through 2020, which is, in my opinion, unlikely.

Last night, the Chinese Bureau of Statistics released some key economic data for May. Industrial production printed at 6.5% y./y, which matched April growth in the space, and beat May estimates. Retail sales grew by 10.7% on a yearly basis, also slightly beating consensus. Fixed asset investment however, did slow from April, and also missed projections.

The Chinese economy is crucial to the demand side of the global picture. That's obvious. Two major items are not obvious. Does public spending slow going forward, even as the "One Path, One Road" plan develops? Then, just how trustworthy is the data put forth from the Liaoning, Jilin, and Inner Mongolia provinces in northeastern China? If economic data from those provinces is not trustworthy, then just how widespread is this falsified data situation. How much of an impact does this place on Chinese headline data, and in turn, how can anyone make an intelligent prediction on GDP out to 2020 with this kind of underlying uncertainty? It's not like the IMF had to come out and say something. Odd.

Macro

08:30 - CPI (May): Expecting 0.1% (2.0%), April 0.2% m/m (2.2% y/y).

08:30 - Core CPI (May): Expecting 0.2% (1.9%), April 0.1% m/m (1.9% y/y). Headline consumer level inflation has been pedaling backwards at "ramming speed" after a February year-over-year print of 2.7%. In succession... 2.4%, 2.2%, and then today's expectation of barely hanging on to a 2 handle. The primary cause of this slowdown was also the primary cause of the CPI's rapid ascent over the three months prior to that run. Energy prices. The scary thing is that after you get to the core, the rate of inflation though not as rapidly, is still visibly slowing month after month. This data matters.

08:30 - Retail Sales (May): Expecting 0.1%, April 0.4% m/m. Weak retail sales may do nothing to improve sentiment around struggling retailers, especially Sears Holdings Corp. (SHLD) and Macy's (M - Get Report) .

08:30 - Core Retail Sales (May): Expecting 0.2%, April 0.3% m/m.

08:30 - Control Group (May): Expecting 0.3%, April 0.2% m/m. Weak vehicle sales for May are expected to have left a nasty mark on the headline number in this space today. Unfortunately, due to softer energy prices, you can probably also expect gasoline sales to hurt the core number. The strength in this data, outside of non-store retailers (the internet), has been in electronics, appliances, and building materials. For newcomers wondering what the "control group" is, this data comprises total industry sales that are used to prepare estimates for PCE for most goods.

10:00 - Business Inventories (April): Expecting -0.1%, March +0.2% m/m. Inventories finally popped back in November. Then we saw three more decent monthly builds in a row after that. Today, possibly we return to reality -- a reality that was expressed in yesterday's Small Business Optimism Index. Nobody wants to stock inventory any more until they need it. Keep in mind, wholesale inventories, a major component of this "headline" item fell off of a cliff in April (-0.5% m/m).

10:30 - Oil Inventories (Weekly): API +2.75 million , Last Week +3.3 million barrels.

10:30 - Gasoline Stocks (Weekly): API +1.794 million , Last Week +3.3 million barrels. WTI Crude prices were hit rather hard in after-hours trading, retracing yesterday's gains made during the regular session. The catalyst? These two sizable builds for crude and gasoline that showed up in the API (American Petroleum Institute) data when sizable draws had been expected. Trust it? I don't know. Last week, the Wednesday morning numbers that the EIA (Energy Information Administration) put to the tape contrasted sharply with the API prints.

14:00 - FOMC Policy Statement.

14:00 - FOMC Economic Projections.

14:30 - FOMC Press Conference. The fun starts at 2pm, and will only pick up in intensity as the Fed Chair speaks and answers questions. The forward-looking trajectory of interest rate policy, balance sheet management, changes to economic projection regarding inflation, and GDP. It all starts here, and if past "Fed Days" are any indication, both volume and volatility will be the story as we embark upon the final hour of trade.

Sarge's Trading Levels

These are my levels to watch today for where I think that the S&P 500, and the Russell 2000 might either pause or turn.

SPX: 2457, 2447, 2440, 2429, 2420, 2410
RUT: 1441, 1433, 1426, 1420, 1413, 1403

Today's Earnings Highlights (Consensus EPS Expectations)

After the Close: (JBL - Get Report) ($0.29)

Worried about how to pay for your golden years? Ken Fisher, founder of Fisher Investments, and TheStreet's Jim Cramer will tell you what you need to know in a June 21 webinar on the market trends that are shaping retirement planning today. Register here for the event, which starts at 11 a.m. ET.

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At the time of publication, Stephen Guilfoyle had no positions in the stocks mentioned.