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Federal Reserve Chair Janet Yellen speaks at a meeting of the Financial Stability Oversight Council (FSOC) at the Treasury Department in Washington May 19, 2015.

Carlos Barria/Reuters

The Federal Open Market Committee's two-day meeting is the main event in a week that will keep interest-rate watchers in both the United States and Canada on the edge of their seats.

The U.S. Federal Reserve – whose meeting culminates on Wednesday with the FOMC statement, economic forecasts and Chair Janet Yellen's press conference – is widely expected to leave its benchmark federal funds rate unchanged. But economists will sift through the statement and Ms. Yellen's comments for clues about when the Fed will start hiking the rate, which has been set at a range of zero per cent to 0.25 per cent since December, 2008, in the throes of the financial crisis.

Some economists expect little new information from the Fed this time around.

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"We expect the Fed to be firmly in wait-and-see mode, with no major changes to either the FOMC statement or Fed officials' rate projections," Paul Ashworth, chief U.S. economist with Capital Economics, said in a report.

"We still expect the first rate hike to come at the September FOMC meeting."

Others expect that the Fed will take the opportunity to tweak the language of its statement to signal that it is nearing a decision on monetary tightening, although anyone hoping for specifics on the timing may be disappointed.

"We expect a moderately more hawkish sounding Fed that warns of commencing rate increases this year but remains ambiguous over the exact meeting for liftoff," Bank of Nova Scotia economist Derek Holt said in a note.

With recent U.S. economic data painting an improved picture, Mr. Holt has "increased conviction that the first hike will arrive by September with near-zero risk prior to that."

After this week's meeting, the FOMC next convenes on July 28-29, but that meeting will not include a summary of economic projections or a press conference by Ms. Yellen, whereas the June 16-17 and Sept. 16-17 meetings will feature both.

In its March and April statements, the FOMC said it will be appropriate to raise the rate "when it has seen further improvement in the labour market and is reasonably confident that inflation will move back to its 2-per-cent objective over the medium term."

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The most recent U.S. employment data were strong, with 280,000 jobs added in May – ahead of the 251,000 average of the previous 12 months. The latest read on inflation comes on Thursday with the release of the consumer price index for May.

Rebounding gas prices are expected to boost the CPI by 0.5 per cent in May from April, but the index is expected to be flat year over year. Core prices, excluding food and energy, are expected to rise 0.2 per cent on a monthly basis and 1.8 per cent from a year ago.

Other May U.S. economic stats on tap include industrial production on Monday and housing starts and building permits on Tuesday. The May data will provide fresh insights regarding the strength of the U.S. economy in the second half.

In Canada, the week kicks off with data on existing home sales on Monday. Led by gains in Vancouver and Toronto, sales nationally are expected to rise by 4 per cent and average prices by 7 per cent in May from a year earlier, according to economists with BMO Capital Markets. Although still strong, it would mark a cooling from April's red-hot growth of 10 per cent in sales and 9.5 per cent in prices across the country.

Friday will bring Canadian data on retail sales for April and inflation for May. Led by strong auto sales, "retail sales are expected to climb 0.7 per cent in April, building on a cumulative 2.2-per-cent surge in the prior two months, which followed weakness at the start of the year," said BMO economist Benjamin Reitzes.

On the inflation front, the core CPI – which excludes eight of the most volatile items such as fruits, vegetables and various fuels – will be especially important in that it could pour cold water on the notion that the Bank of Canada will cut interest rates again.

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Even as headline inflation has been weak because of low energy prices, the core CPI has remained persistently above the Bank of Canada's target of 2 per cent for the past nine months. Prices have risen sharply for items including furniture (up 6.3 per cent year over year), poultry (4.2 per cent), Internet services (6.8 per cent), electricity (2.9 per cent) and tuition (3.2 per cent), according to Scotiabank's Mr. Holt.

"Nah, prices aren't rising," he said, jokingly. "Barring unforeseen and big shocks, a discussion about the possibility of rate cuts in this environment makes no sense to me, especially with about 85 per cent of the economy lying outside of the direct and indirect effects of the energy sector that itself is looking up with oil price gains over recent months."

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