I heard a rather excitable radio personality refer to this week's FOMC meeting as the "most important central bank meeting in the history of monetary policy."  While that might be going a bit far, it's still pretty damn important.  It's important because the Fed has done surprisingly little to back down from their rhetorical perch, from whence they've proclaimed with relative unity that rates will finally rise from the 6.5-year stint at all-time lows.  That's been surprising due to the headwinds that--by all rights--should have given the Fed a bit more pause than they seemed to receive. 

In other words, you would have thought that some of the recent data, the still-low oil prices, the global growth concerns, and recent market stability issues would have precluded the Fed Vice Chair from implying that the Fed would hike this week if the preceding few weeks of data were decent.  But alas, he did just that.

Have the last 2 weeks been decent enough?  That's a tougher call, and it's one of the reasons we didn't see more movement after NFP earlier this month.  Almost nothing has changed on the list of reasons the Fed should hold off, but the kicker is that absolutely nothing has changed on the list of reasons the Fed wants to hike. 

What is on that second list, you ask?  Why does the Fed want to hike?  At this point, they've only left us with one conclusion, because clearly, they're not overly concerned with that list of reasons to hold off.  The Fed wants dry powder for the next downturn.  Can you imagine how it would look if they had to resort to QE again?  At least lowering the Fed Funds rate is in the mainstream monetary policy playbook.  The Fed figures it only has so much time to raise rates before it will need to bring them back down.  They'd prefer not to say this overtly, for obvious reasons, but it's the only logical explanation we have left.

It's quite logical too.  Whether it's the disenfranchised masses with their stagnant wages that fail to spur spending at home, the rest of the global economic turmoil, or the fact that both of those factors get worse if the Fed hikes, it makes plenty of sense to consider a shift in the broad economic cycle happening within the next 1-3 years.  On the chance that it's on the shorter end of that spectrum, clearly the Fed needs to hike as much as it can get away with.

All of this isn't to say that it WILL happen this week.  In fact, markets have increasingly seen September as a "maybe."  But markets also increasingly see it happening some time soon.  Both of these concepts are presented in the charts below.  The upper section is just for September 2015.  The lower section is for a constant time window of "6 months from now."  Bottom line, while we're not too sure what's going to happen this week, we're pretty sure it will happen within 6 months.  Either way, this week is a big deal.