A post-FOMC market blastoff, but in which direction?

Mid-week update: I thought that I would write my mid-week update a day early, because of the binary outcome of the FOMC meeting. This meeting could turn out to be a critical turning point for the short and medium term tone of the markets.

It`s becoming fairly clear that the Fed is unlikely to raise rates at its March meeting. Marketwatch highlighted analysis from BoAML indicating that the Yellen Fed has not historically surprised the market with rate hikes.

On Friday, a team of currency and interest-rate strategists at Bank of America Merill Lynch suggested that it might be time for a new approach.

After studying Fed-funds futures data, the strategists discerned that the Fed has typically provided investors with plenty of warning before raising rates.

As the following chart shows, the Fed hasn’t raised interest rates unless the market assigned it at least a 60% probability of doing so. This seems to contradict the Fed’s desire that every meeting be viewed by investors as potentially “live,” meaning the central bank could make a rate move at any one of its confabs.

If the Fed were to raise rates either at its April or June meeting, now is the time to start telegraphing that move. Here is what`s at stake as we await the FOMC announcement.

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As a reminder, here is a sample of some of past posts:

• Why I am bearish (and what would change my mind) May 2015
• Relax, have a glass of wine August 2015
• Why this is not the start of a bear market September 2015
• The reason why the bulls should be cautious about a January hangover December 2015
• Why this is a correction and not a bear market January 2016

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