With everyone pontificating on when the Fed will hike, very few understand how or how much

Bernanke and Yellen have created a monster

The big game ongoing in markets is guessing when the Fed will raise rates. Will it be September? Will it be December? Reuters was out with a poll today and 55 of 70 see September as the likely date with 10 saying their confidence increased compared to last month.

But this is shocking part of the story:

"Among those surveyed, there was no clear consensus on whether the Fed will continue to set interest rates in a band or identify a fixed rate."

That's a tremendous embarrassment and (once again) shows that most economists are little more than a wing of the banks public relations department. If the timing is so important, than surely whether rates are at 0.37% or 0.50% is at least as important. Yet economists couldn't even be bothered to read the March FOMC minutes:

"The Federal Reserve intends to continue to target a range for the federal funds rate that is 25 basis points wide"

It's not even new information. Over a year ago, Reuters' Jonathan Spicer wrote about the question and said "a target range for the federal funds rate may will be here to stay."

hat those number-crunching wonks, with their math-filled PhD's should really be doing is figuring out how the Fed is going to deal with raising rates while holding $2.8 trillion in excess reserves on its balance sheet. For all the mountains of reports written on the timing, the execution is the real crux of the problem.

The Fed itself has been coy but meeting minutes show frequent chatter about the expected difficulty of hiking.

"Minutes released by the Federal Reserve of its March policy meeting were a reminder that the central bank could face real operational challenges when it decides to start raising short-term interest rates," Hilsenrath wrote in April. "For years, Fed officials have sought to reassure the public that they had all the tools they would need to raise interest rates when the time came, even with all of these reserves in the banking system. The minutes show that even now the mechanics of how they'll do this are very much a work in progress, and a possible source of market uncertainty as the Fed looks toward rate increases later this year."

A month later, the Fed minutes express some confidence but details are still minimal besides a belief that overnight reverse repurchase agreements can set a 'soft' floor and that IOER will keep a lid on it.

"Participants agreed that the Committee's testing of normalization tools, in conjunction with its other planning, had created conditions under which policy normalization would likely proceed smoothly once it commences," the minutes said.

Likely?

What's even more interesting is that some people at the Fed want to drop Fed Funds as the target altogether, in another sign of the difficulty of fighting market forces. One of them was former New York Fed markets chief Brian Sack who argued for a switch to overnight fixed-rate reverse repurchase agreements last year.

The market has tunnel vision on the question of when the Fed will hike but immediately after the announcement, there will be an avalanche of speculation and hand-wringing about how and whether it will work.

One person who has written extensively about the problem is Lee Adler at the Wall Street Examiner. He's convinced the Fed will struggle to hit a target (or a range), when the time comes.

June 17 FOMC decision

The market only sees a tiny probability of a surprise hikes, with just two of 70 economists surveyed by Reuters forecasting a move. The focus will be on the degree of optimism and hawkishness in the commentary but, ultimately, the Fed will fall back on data dependence.

For the most part, market participants are piled into the side of the trade that believes the Fed will be more hawkish. It's almost certainly overdone and look for that sentiment to unwind soon after the decision.