While it is a forgone conclusion that the Fed will leave short term interest rates unchanged this afternoon, the more important question becomes, what will the Fed do after today? In order to get the market's outlook regarding this issue, we can look at the Fed Funds futures contracts.
Based on the October contract, the market is expecting only a 38% chance that the Fed will cut rates between now and its Halloween meeting. This is a far cry from the last meeting on March 20th, when investors were expecting nearly 100% odds of a 25 bp cut in rates.
Even though rate cuts imply an economy at risk and in need of a boost, most investors would prefer the Fed's statement this afternoon to signal that rate cuts are on the horizon. If this afternoon's statement shows no hint that the Fed is shifting to an easing stance, the market is likely to respond negatively. However, we can take some comfort in the fact that heading into today's meeting, expectations for future rate cuts are low, and therefore even a statement which is a bit hawkish may not have the same impact as it would if expectations for cuts were higher.