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Fed statement may bring more volatility than expected

No matter how much it tries to avoid it, the Fed could get markets spinning on a fresh round of rate hike speculation Wednesday.

The Federal Open Market Committee ends its two-day meeting Wednesday afternoon, and is expected to release a statement that should be short on clues as to when the central bank could raise interest rates. The meeting should also be the last in a while where a Fed rate increase is not seen as at least a possibility.

Fed watchers surveyed by CNBC expect a rate hike in September, by a very thin margin. The next likely date is December, but there is also an October meeting, viewed as unlikely since the Fed does not have a scheduled press conference after it.

"They definitely won't say (they will move) because there's too much data to come, so all they can do is leave open the opportunity," said Art Cashin, director of floor operations at the New York Stock Exchange for UBS. "I think they'll have the usual 15 minutes of frenzied trading, then everybody will say we're pretty much where we were before."

According to Bespoke, the S&P 500 has mostly reacted positively—gaining 0.44 percent on the Fed days since the shift to zero interest rates. Going back to 1995, the average S&P move was a gain of 0.34 percent on central bank statement days.

Some traders are looking for the Fed to make note of concerns about China's market meltdown or the commodities selloff that's hitting the emerging world, but economists see that as unlikely in Wednesday's statement, and a more likely comment in the Fed meeting minutes three weeks from now.

"The Fed doesn't want to be the one to make noise this week," said Diane Swonk, chief economist at Mesirow Financial. While Wall Street does not expect any significant move from the Fed, it has been rife with speculation on what the central bank might do to prepare the markets for the road to rate normalization.

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"I get the impression they're really ready to go," said Swonk. She said the Fed would not get into calendar references for September or December or otherwise, and will instead point to its reliance on economic data. "It's a little obtuse what the data is telling us. Maybe inflation is picking up. Maybe it's not. These are all things that fit into the equation. They have to be careful about what they say at this time," she said.

Some in the markets are hard-pressed to remember the last Fed rate hike cycle, ended in June 2006.

"This is weirder than usual because they've been on zero for so long now, and there's been so much in between in terms of balance sheet expansions, and changes in the structure of their portfolio holdings ... and the delays. This is a more monumental decision than they've made in some time so the intrigue surrounding it is only going to be greater than the intrigue surrounding other tightening situations," said Ward McCarthy, chief financial economist at Jefferies.

George Goncalves, head of rates strategy at Nomura, said if the Fed acknowledges the weakness in markets that would be viewed as dovish and a sign it is not 100 percent sure it could move on rates yet.

"They have no incentive to be hawkish or dovish. I believe they would like tomorrow to be a nonevent, on a path to them eventually lining things up for a hike in September or December, depending on how the chips fall. I don't think they want to take September off the table. I don't think they want to signal. They just don't have enough information to get boxed in one way or the other. They have no incentive to be hawkish or dovish," he said.

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McCarthy, who expects a first hike in December, is watching the language in the statement on inflation. The Fed said inflation was running below its objectives in part because of energy prices. But in June, it said those prices have stabilized, and since then oil has plunged back into a bear market. "It will be interesting and very telling how they describe it," McCarthy said.

He said the Fed should sound more optimistic on housing. "Frankly, it's inflation tying them up right now. It's not the labor market," McCarthy said.

But some economists say the Fed could change the description of the labor market, as it and inflation are the two pillars of its mandate. In June, it said the "underutilization of labor resources diminished somewhat."

Goncalves said the Fed does have scope to enhance some of the language on the economy. "On one hand, you can upgrade some of the assessment of activity, but you can't turn a blind eye to inflation and the expectations for inflation. Oil's getting clobbered. One of the assumptions they've made is that oil's going to remain stable and they haven't gotten that yet."

Read More Fed rate hike would 'crush' US housing: Analyst

Others expect the central bank to tweak its comments about the risks to its outlook. Last month, the Fed described the risks to the outlook for economic activity and the labor market as "nearly balanced." Some Fed watchers say the word "nearly" could be dropped and that would be a sign of a pending hike.

"In the old days, they wouldn't hike rates if the risks were not balanced. In the latest statement in June, the risks were not balanced. I'm going to be looking at that paragraph to see if the risks are balanced. If it's balanced, that's the green light for them to go in September. That would be their clue that September is a done deal," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi.

Goncalves said a wild card would be if the Fed discussed its balance sheet and reaffirmed it will continue to reinvest in Treasurys or mortgages even after it starts raising rates. While there's a small chance of it making a comment on that, the Fed will have to address it in the next couple of meetings, he said. "I think they're going to say we're going to keep going until we normalize rates. ... They could emphasize that they're going to continue the policy of reinvesting even after rate hikes begin," he said.

Read More More of Wall St. sees a later rate hike: Survey

McCarthy said the market will be sensitive to any shift. "Any change in any word is going to be a clue. And it will be a clue we almost certainly will misinterpret. I don't think they're going to try to be cute. I don't think they're going to try to send a subliminal message. They'll just try to call it as it is. The bottom line is we're going to have look at the data between now and September."

The Fed releases its statement at 2 p.m. ET Wednesday. There is also pending home sales data at 10 a.m. and a slew of corporate earnings, including MasterCard, GlaxoSmithKline, Nissan, Anthem, Garmin, General Dynamics and Barclays. After-the-bell reports include Facebook, Whole Foods, Wynn Resorts, Marriott, Samsung, AMC Entertainment, La Quinta and SolarCity.