The FOMC decision on interest rates is expected today at or around 2:15 PM EST.  Most market pundits are expecting no change to the Fed Funds Rate.  The target of 0.00% to 0.25% is still being maintained as consensus.  Today’s focus is likely going to be on how many more Fed governors are wanting to see rate hikes come into play as well as its exit strategy for its balance sheet assets.  The last FOMC had only 1 calling for a hike, some feel there could be two calling for a hike today.  It seems unlikely that Bernanke and friends can turn on a dime just yet, but the FOMC should be raising rates today.

It seems that very few actually believe that the real unemployment rate has changed or really improved as the data from the Labor Department has shown in recent months.  It is believing in that “opting out of the workforce” issue as if everyone who couldn’t find work went to a permanent retreat at the Zen monastery or just all took on the house-spouse role permanently.

What is interesting is that Bloomberg noted “there is a possibility that the Board could announce another 25 basis point increase in the discount rate….” and noted that the current 50 basis point spread between the discount rate and the fed funds rate compares to what is traditionally 100 basis points.

Whether the FOMC changes the discount rate or not, the Fed needs to begin hiking rates.  Even if this is just setting at 0.25% rather than the virtual-zero rate we have today, this would be a start.  That is no signal at all that things are overheating.  In that regard, Fed Funds of 2% to 3% used to sound exceptionally low in the 1990s.

There is an interesting notion here that is not being talked about.  Hiking the Fed Funds now would probably have a very small impact.  This would actually give the Federal Reserve some ammunition next year if we end up in a double-dip recession after the tax rate resets are likely to come back into play.