How to mitigate the chance of a disaster? Two more things are necessary:
- Lowering the "dots" or the expectations of the FOMC members, about the path of the rate hike. That immediately implies a second hike is a bit farther off.
- Use an implementation note to explain yourself.
Buried in the June FOMC minutes was this statement:
"Participants also discussed plans for publishing operational details regarding the implementation of monetary policy around the time of the first increase in the target range. All participants supported a staff proposal for the Federal Reserve to issue an implementation note that would communicate separately from the Committee's postmeeting policy statement the specific measures to be employed to implement the FOMC's decision about the stance of policy."
Read More Rubenstein: Why the Fed won't raise rates now
So if they do hike, the Fed is likely to issue a note that would explain the expected path of rate hikes. The hope, obviously, is that this might dampen market volatility
I know, it's all very risky. But it may be less risky than simply re-iterating the data is getting better and implying the Fed will raise rates sometime in the near future. Hanging the Sword of Damocles over the markets month after month creates endless uncertainty, particularly when the outcome seems inevitable.
What is the market saying? It is sending mixed messages, implying there is no unified opinion. I noted yesterday what happens when the market looks like this:
- Stocks: up
- Gold and commodities: up
- Dollar: down
- Banks: mixed
- Volatility (VIX): downtrend
That type of market would seem to imply a rate hike is unlikely. However, bond traders have been screaming that two-year Treasury yields have been moving up aggressively recently, to the highest levels since 2011. Since the short end of the curve is particularly sensitive to Fed moves, that, the hawks assert, implies bond traders think something is going to happen.
Read MoreUnconventional ways to play the Fed decision
There's one other modest wrinkle. Tomorrow is a quadruple expiration tomorrow, the quarterly expiration of stock index futures and options, as well as individual stock futures and options.
While this is not the big event it used to be (thanks to the growth of weekly and month options), will likely create much higher volume than usual since it occurs on the day after a Fed meeting.