Trader Talk

Traders worried about change in Fed's guidance

Pisani's market check: Fed short-term impact

Interest-rate sensitive groups have done pretty well this year.... The Utilities Sector is the second biggest sector gainer on the year, up over sever percent, REITs are also up big, nearly 10 percent, high-yield bond ETFs are having a respectable year, up over one percent, and even Treasury ETFs like the IEF (7-10 year Treasuries) are up 2.9 percent.

Traders are concerned that the Fed will change the forward guidance language, de-emphasizing the 6.5 percent unemployment threshold...and will inject other metrics: Labor demand, weekly wages and inflation.

All that will provide a broader, more qualitative flavor to the Fed's decision-making process on raising rates, but it carries a risk.

The decision-making process will also be more opaque, it will be more difficult to decide when they are going to move.

The concern is the markets will be confused by this initial guidance, and rates might initially rise...particularly on the shorter end of the yield curve, like the two-, three- or five-year Treasuries.

Remember, the ideal situation would be for a gradual steepening of the yield curve, with the front end gently moving lower and the back end gently moving higher.

The Fed wants to keep market expectations of when the next rate hike will come pinned to the back half of doesn't help them if rates start to steepen in the short end of the curve suddenly.

Of course, down the road that may be a difficult task to accomplish, particularly if the economy picks up and the velocity of money increases. But they could make it worse by a confusing statement.

By CNBC's Bob Pisani