The odds have to be pretty high that an increase in the fed funds overnight rate of interest has been put to the vote.
Of course that does not mean that rates will rise at 2pm. But if the FOMC decides not to vote in favor of the first change in rates since June 2006, it will send a vital message to Wall Street and investors around the world concerning its desire to start the engine. Money market futures contracts imply a 30% chance of a quarter-point rate increase. But there is a case for doing less – say a 10 or 15 basis point increase.
By so doing, the Fed could kill a couple of birds with one stone. It would keep to its word that the time for policy normalization is here. The outcome is moot, but the fact that it voted could be critical and in keeping with its still-developing policy of greater transparency and ever-improving forward guidance.
But it could also alleviate some of the stress faced by the dollar. Too much suspicion of a rate increase has buoyed the greenback at a time when many other global central bankers are taking policy in the opposite direction. Imagine the disappointment for the dollar of anything less than a quarter-point turn of the ratchet, especially if Janet tells the press conference she has no idea when the next meager increase is coming. A less than 25bp increase in rates might be quite successful in resetting the trajectory and terminal view of where interest rates are heading.
My suspicion is that the Fed WILL vote on whether to tighten today. Voting against the move, primarily on account of lingering impact of disruption on global financial markets, may be the big story. But it also solves the problem of what happens next month…