It seems like everything I’ve read in the last couple days has focused on whether or not the Fed will raise rates or pause at Tuesday’s meeting. Will Helicopter Ben show up, or the Inflation Targeter that he more tended to portray while in academia. The rate futures have a 25% probability of a hike in August, and about 50/50 for September.

There is the added dimension of what commentary accompanies the actual interest rate. If they raise rates but say, “this is the last one” many people will be excited. If they don’t raise rates but say, “we’re definately raising rates in September” excitement will be mixed…

And one more monkey wrench to toss in — what has the market already priced in? If everyone thinks they’re not raising rates (as evidenced by the futures probability) not raising rates may cause the market to go down (buy the rumor, sell the news).

So, with all this anticipation and second guessing Ben, the commentary, the markets… does it matter?

More important than correctly predicting the rate change decision is properly being prepared for either scenario. It is not very wise to convince yourself that there is only one possible outcome and leave yourself vulnerable to the chance of being wrong – regardless of what the probabilities are. Murphy’s law would apply – if something can go wrong it probably will.

I believe rates will go up, but I don’t have any special inside information as to why. I think the Fed has shown us in the past that they go further than most market participants think they should. I think the Fed is targeting asset prices even though they say they’re not. They face the tradeoff of stopping excessive speculation now or a year from now — the pain now is much more tolerable than a year from now (politically as well as economically). I believe the Fed is willing to risk a recession, and being able to stop inflation now avoids a potentailly Volker-like situation from being necessary.

Of course, that’s just what I believe. I’m not positioning my investments or speculations to depend on a rate hike to be successful.? And if I were, I would certainly make sure I knew how to get out of a position with only a small loss if I find out I’m wrong.