How far does the FOMC want to push the probability

The Federal Reserve still has work to do if it wants to prepare the market for a June hike.

The drumbeat of hawkish communication has pushed the implied probability of a hike to 40% from 4% but that's still not high enough to avoid a disruption if the FOMC pulls the trigger on June 15.

When the Fed hiked in December, the market had priced in a 76% chance of a hike.

The FOMC might not aim that high but will want to get it above 50%. Despite all the talk of rate rises lately, most of the big guns have remained silent. Vice Chair Fischer didn't drop any hints in a speech last week and the Fed governors have been mum.

A host of regional Fed presidents have talked hawkish talk but Yellen and the governors have a de facto veto.

Naturally, they want to see more data and that's why the numbers this week and next are so critical but they're also running out of time. In a perfect world, Yellen & Co would like to see every data point before making a decision but in the real world, the communication and preparation is as important as the move itself.

July hike makes sense

For now, a 40% probability is perfect for setting up a July hike. The Fed can stay sidelined in June but adopt a strong bias towards a near-term rate hike. Yellen can then pull the trigger in July, barring a crisis.

One line of thinking is that the Fed won't hike in July because there's no press conference. The Fed has repeatedly said it can act at any meeting and it would be healthy if the Fed killed the illusion that it can only act at the four meetings a year with press conferences.

But if they want to move in June, the speeches from Powell on Thursday and Yellen on Friday are big. The June 6 Yellen speech is even bigger.