For many market watchers, mavens, talking-heads of all varieties, and even surveyed primary dealers, today's question isn't so much about WHETHER the Fed delivers some form of additional easing, but rather, WHAT it will look like.  The latest surveys of economists and primary dealers alike, all show a roughly 15 per cent increase in the "QE3 likely" camp, and in both cases, bringing the survey's from just under 50% in favor to something closer to TWO THIRDS.

Recall that the FOMC Minutes in late August noted the following:

"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery."  - FOMC Minutes 8/22/12

To be sure, we've definitely not seen substantial and sustainable strengthening.  This would seem to suggest a certain likelihood of "additional monetary accommodation."  The market consensus is not rocket science in this regard.  The same FOMC Minutes went on to note:

"Many members expressed support for extending the Committee's forward guidance, but they agreed to defer a decision on this matter until the September meeting in order to consider such an adjustment in the context of updates to participants' individual economic projections and the Committee's further consideration of its policy options." - FOMC Minutes 8/22/12

Wow!  No wonder markets seem to be so well on the same page regarding the extension of the low rate verbiage!  The FOMC pretty much already said it's coming in the September meeting, and was only delayed so that it could coincide with the economic projections release (which August's meeting didn't have). 

This then, gives us the baseline for today's action.  An extension of the verbiage is very likely.  But we should also consider the final part of the last snippet above in that the FOMC's "further consideration of it's policy options" ALSO provides the context for deciding on whether or not to extend the low rate verbiage.  To us, this seems like a simple enough balancing act.  If the Fed calls down the thunder in terms of "monetary accommodation," then there is less need to aggressively extend the forward guidance.  We could see both, but more of one theoretically makes for less of the other. 

In terms of market reaction, it's very difficult to answer the question "what will rates do if the Fed does A, B, or C?"  This was a much easier endeavor in mid 2008 when, clearly, Fed MBS sponsorship was nearly guaranteed to reign in runaway spreads between MBS and Treasuries.  Spreads are relatively stable at significantly tighter levels these days and the market has already priced in SOMETHING happening today. Because of that, we're poised to move in either direction and can't rule out some of the biggest movements in recent memory depending on what's said at 12:30pm.