Hey, Fed? Why not raise interest rates one-eighth of a point?

Hey, Fed? Why not raise interest rates one-eighth of a point?

But raise those rates in December, not now. Thursday’s markets will react—violently or not—on Fed’s move or non-move tomorrow.

Riddle me this, Wall Street: What will the Yellen Gang do next? Frank Gorshin starred as the best Riddler ever in the campy 1960s "Batman" TV series. In 2015, the Federal Reserve seems to have taken over his role. (PR still. Episodes currently owned by Warner)

WASHINGTON, Sept. 16, 2015 – The Mavens (Mr. and Mrs.) have returned from the windy precincts of Cleveland, Ohio, which is sprucing itself up, big time, for its turn at hosting the 2016 Republican convention. We got a crisp hint of fall up there for our first few days as a brisk Canadian wind whipped over Lake Erie, resulting in high temperatures in the 50s.

Meanwhile, in money land, an equally autumnal wind has been buffeting markets with what they like least: uncertainty. Thursday is the day of the Big Federal Reserve Announcement. The Fed is slated to reveal what the cognoscenti view as its definitive, final, absolute, never-to-be-taken-back decision as to whether to raise interest rates for the first time since most of our readers were born.

Or not.

Riddle me this, Batman? What’s going to happen next?

It’s all gotten silly and a little scary, as anyone mostly invested in stocks in August will readily attest. As we write this, markets have been open for roughly 15 minutes and the Dow has traded up, and down, and up, and down just a few points, although at 9:41 a.m. EDT, it’s suddenly up some 40 points, with the S&P 500 and the NASDAQ up a blip themselves. UPDATE: As of 2 p.m. EDT, the Dow is up over 100 points, either indicating interest rate bullishness, HFT madness, or both.

But this slightly positive bias may last another 30 seconds before it changes again. Wall Street seems convinced we’ll get a ¼ of 1 percent increase in rates tomorrow. But then again, consumer prices posted a 0.1 percent decline in August, finally tracking with alarmingly deflating commodity prices. The steady commodity deflation we’ve experienced throughout much of 2015 may give the Fed a bit of a pause, as may the IMF’s continued plea to hold off on changing the interest rate environment.

Yet the Fed remains inscrutable. Indeed, no decision the U.S. central bank actually makes will make everybody happy. Fact is, nobody in Washington has any clue what they’re doing anymore, and this ridiculous Hamlet-like interest game is just another symptom, as the entire Obama administration flounders its way to its inevitable, disastrous conclusion.

On “Fed Day,” markets will tend to gyrate all over the place. So, rather than make prognostications here, we’ll just wait until tomorrow afternoon’s statement and then come back with another short column.

For our part, we think the Fed should hold off a bit until things calm down. Then, they should make a surprise decision. They should choose to hike those rates 1/8th of 1 percent, not 1/4th. That would confound all the TV blow-dried talking heads and everyone else for that matter.

After heart palpitations in this scenario, the markets would likely settle down quickly as a 1/8th of 1 percent hike is virtually zero and will have little effect on real interest rates, which will likely go up somewhat more than that before settling down.

Such a minimal move would be unprecedented, lower-than-expected, and not too unsettling. It would provide a signal to markets that the bias moving forward would be for interest rates to creep back to normal. It would give banks a signal that they might actually be able to make money on loans to real people, which might start happening. And those loans wouldn’t be at rates much higher than they are today.

A move like this would cause things to slowly move in the right direction, or at least so we think. And it wouldn’t commit the Fed to any timetable or percentage goal rate at any specific future date. It would, ultimately, be positive and probably not damaging to the economy, even in the short run.

We’ve actually thought this since 2014, but never stated it. However, Larry Kudlow (CNBC emeritus) spoiled our secret plan last week by suggesting essentially the same thing, so we at least have one intelligent backer for this idea.

On the other hand, it makes so much sense, we’d be surprised if it actually happened. And everything at this moment is pure speculation anyway. As of now, only the Wall Street Journal’s Jon Hilsenrath, the HFTs, and all the rich bankers living in New York know what the Fed will really do. Their trades will tip their collective hand roughly 15 minutes before the Fed announcement goes public Thursday afternoon. And that’s when we’ll be able to guess what the Fed actually decided.

See you tomorrow.

(Date errors corrected from earlier edition of this article. Sorry about that.)

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17