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The much awaited Fed meeting is here.  A 25 bp increase in the Fed funds range to 25-50 bp is widely expected.  The near certainty of this contrasts to the high uncertainty of the immediate impact stocks, bonds, and the dollar.

There are five components of the Fed’s decision that will command attention.  First, is the rate move itself.  This is the moststraightforward for the components.   Second is the FOMC statement.  The economic assessment is unlikely to change much.   Part of the statement are the dissents.  There is one voting Fed president (Chicago’s Evans) who has argued to wait until next year.  There are two governors (Brainard and Tarullo) that have also voiced opposition to a rate hike now.  Governor dissents are less common than dissents from the regional Fed presidents.  Any less than three dissents then could speak to Yellen’s leadership.

Third, are the dot-plots–the graphic summary of the Fed’s forecasts.  The most important aspect is not so much macro-economic, but indications of the appropriate policy.  In September, the most recent iteration, the dot-plots indicated that a majority of Fed officials saw four hikes in 2016 and 2017 as being appropriate.

We have argued the dot-plots have a high noise to signal ratio because non-voters are included.  In addition, organizationally, we think that not all dots are equivalent, with the Fed’s leadership being critical.  However, we alsorecognize it as a communication tool that the market may be particularly sensitive to now.  The Fed can drive home the point that the removal of accommodation will be gradual by reducing the projected hikes from four to three.   Of course,it is not binding, and it is still more than the market has discounted, but it would likely meet a loose definition of a dovish tightening. It would also maximize the Fed’s operational flexibility and prevent a gaming of a hike every other meeting.