Fed rate hike: Watch what they say, not what they do

The Federal Reserve is expected to announce the first interest rate hike since 2006. Adam Shell with America’s Markets.
A Federal Reserve interest rate hike today is pretty much a sure thing, as readings on inflation and jobs are headed in the right direction.
And, assuming the consensus opinion on Wall Street is correct, and the Janet Yellen-led Fed does announce its first increase in short-term borrowing costs since 2006, the market's focus will quickly shift to what Yellen and the Fed say about the pace of future rate hikes.
In short, the market reaction will be all about what the Fed says — not what it does, as a quarter-point rate hike is pretty much baked into prices already.

Heading into today's big announcement, stocks are riding a two-day winning streak, with the Dow Jones industrial average posting back to back triple-digit point gains. And the Dow is up more than 100 points today in pre-market trading.
The market is betting on an 80%-plus probability the Fed will hike rates Wednesday, but futures markets are pricing in only two additional quarter-point moves next year.
So, the big question in the Fed statement and in Yellen’s faceoff with reporters is this: Will the Fed back up the market’s current “hike and wait” or “one and done” expectations for future rate hikes — or will the nation’s central bank surprise the market and move away from its party line of moving rates up in a “gradual” fashion?

USA TODAY

Fed poised to finally lift rates — it hopes

“What matters most is the market perception, and subsequent reality, of the future trajectory of Fed actions,” the asset management team at Amundi Smith Breeden told clients in a research report.
Adds Haverford CIO Hank Smith: “The Fed should symbolically hike rates with dovish language, suggesting that this won’t be the beginning of a tightening cycle.”