The United States Federal Reserve Open Market Committee is set to convene a two-day meeting tomorrow with no clear consensus in the market towards the outcome. While stocks, bonds and currencies had priced-in an incremental rise in Fed-set interest rates, the question of timing remained. Would policy-makers move now, or wait until later this year? Most surveys coming out of the US indicated more than half the market expected monetary tightening to be postponed until later this year. However, there are plenty of people expecting action sooner rather than later. Economic indicators point in all directions, as they have for the past few months, but now politics will be part of the equation. With the US presidential elections approaching in November, politics will be a strong focus of any analysis of Fed policy, and the market's perceptions of the central bank's independence may affect sentiment as much as any change in interest rates. Ironically, US indicators show few signs of inflation, though the economy does appear to be growing at a fair clip. Fed policy-makers will sit down to an ideal situation of strong growth with low inflation. Meanwhile, leading indicators paint a confusing picture, making economic forecasts difficult to compile and even more difficult to take seriously. The markets, particularly bonds and currency, had jumped ahead of the situation on the belief that where there is growth, inflation will follow. The thinking goes, when there is inflation, the Fed should raise interest rates, unless politics get in the way. Higher interest rates may head off inflation in the works, with an unfortunate side effect of slowing the economy. Most voters would not notice inflation that had not happened yet, but they would feel an economic slowdown and that could make it more difficult for President Bill Clinton to win a second term. Mr Clinton had taken the unusual step of stating publicly that he saw no reason to change interest-rate policy. Market reaction to this week's meeting was equally hard to call. Late last week bond prices rallied, pushing yields sharply lower as more traders positioned themselves for no change at this week's meeting. However, some sources said the bond market could be sold off whether or not the Fed tightened monetary policy. If the Fed did not move, the collective sigh of relief that one would normally expect might not be heard, some argued. Instead, questions about the central bank's independence would be raised. More inflation could be factored into economic forecasts and bond yields could rise. Stuart Gulliver, treasurer of Hong Kong bank, forecast a 25 basis point rise this week. 'Even without it, bonds will sell off because if rates are not raised, people will say the Fed is playing politics.' He said bond yields could kick as high as 7.4 per cent in the near term, before easing back. Lehman Brothers chief financial market economist Stephen Slifer forecast a small tightening at this week's meeting - not because it was necessary to cool inflation but because the Fed would not want to be seen hesitating ahead of the election. Financial markets had priced-in a [monetary] tightening and that might force the Fed to oblige, he said. Christopher Day, head of research at Fimat Derivatives, did not foresee the Fed striking with any sort of pre-emptive, inflation-fighting rise until after the election. Already, there were signs that inflation might not turn out to be a concern, he said. For one thing, some inflation measures had been squashed by the collapse in copper prices. 'If there has been any overheating, the market has already moved to cool it off a bit.'