Is the market rallying into a rate increase?

Inside the mind of the Fed

Stock market players are toying with becoming their own worst enemies, buying themselves square into the teeth of an interest rate increase.

The post-Labor Day rally Tuesday was good news inasmuch as it helped offset a horrible start to September, which in itself added to a brutal August that saw the major indexes drop more than 6 percent.

But timing is everything when it comes to market movements, and if the momentum bleeds into next week, it could be just the thing that gives the Federal Reserve impetus to hike rates for the first time in more than nine years.

"If a higher stock market is the Fed's implied third mandate, then are we rallying into a rate hike next week?" Peter Boockvar, chief market analyst at The Lindsey Group, wondered in a note to clients Wednesday morning.

The question is a critical one. Most surveys of Wall Street pros—economists and strategists—indicate the U.S. central bank is poised to make a move at the Federal Open Market Committee's Sept. 16-17 meeting. Futures markets, though, say otherwise, with the CME's FedWatch tracker still indicating just a 24 percent chance of a quarter-point increase.