Crank out the popcorn, grab your drinks, prop up your feet, it is another Fed day. Every Fed day since September seems like it it is the pinnacle of tension, apprehension, and drama and then the next Fed day the pressure seems to be ratcheted up even more.
I for one am glad I am not in the Fed shoes. Grant it, I think they themselves like idiots backed themselves into corners but I would not want to be called in at this point to make a decision. What do you do? You can't lower interest rates to juice the economy. That is off the table. Can you really raise rates? They won't do it today but in the next three months could you really raise interest rates or are you so handcuffed at this point? The truth is they should have stopped lowering about a 1% ago but now that you are here can you really raise it?
The perfect outcome would that the Fed would be able to raise (not talking today) 25 bps and that it would be shot heard around the world causing the speculative juices out of commodities to plummet, the dollar to rally, and the financial system to gyrate in place. The key would be the last one. Would the financial system react okay or would it send the financial market over the edge as George Soros reflexivity takes hold? The nightmare scenario would be that rates across the yield curve would dramatically spike and spreads to blow out.
Everyone seems to think that no matter what the Fed says it won't be good and the market will head down. Traders seem to be even hoping for this to get into an oversold position that you can play on the long side Friday or early next week. The fact that so many are expecting this or even hoping for this makes me think the opposite will happen. I was thinking that after the Feds announcement the market would go down but assuming the Fed doesn't do anything idiotic I think the reaction may be the opposite. I do not have a strong enough probabilistic opinion on it and so will not be playing a position but the market often does whatever it can to make the most people look the most foolish and it seems to me that would be move strongly up after the Fed announcement. Of course the Fed could botch the communication again and send the market spiraling. So enjoy the show, as always it should be a good one.