What to watch

Market reaction to Fed to speak volumes

When the Fed decision on interest rates hits at 2 p.m. ET Thursday, the reaction of financial markets will tell you what Wall Street thinks about the decision, the Fed’s reasoning and where they think markets might go next.

For weeks now, Wall Street pundits have hit the airwaves, the blogosphere and the business sections of newspapers pontificating whether the time is right for the Fed to hike rates and what the impact will be on stocks, bonds, currencies and every other investment that trades around the globe.

Given that the “market” weighs the opinion of all investors, the reaction of markets around the globe will show if they like or dislike the Fed’s decision.

There will be all sorts of reactions. The knee-jerk one will come milliseconds after the rate decision goes public. If stocks go up or down at the get-go, it’s the first sign of whether its a bullish or bearish reaction. But expect volatility, as the market will have to digest not only the decision to hike or not to hike, but also the language in the Fed’s post-meeting statement explaining what they decided and why, as well as the all-important news conference Chair Janet Yellen will hold with reporters 30 minutes after the decision is announced.

What the market really thinks about the Fed’s decision could take time to figure out. It could be a day, a few days — even weeks or months. A new rate hike cycle is nearing, and that will breed volatility one way or another.