The focus of most investors is the rate decision by the Federal Reserve tomorrow. Since the central bank completed its asset purchase program at the end of last year, a rate hike has been understood as a matter of time.  

Expectations for a June lift-off were dashed by the disappointing economic activity at the start of the year. Officials correctly anticipated the headwinds to be temporary, but expectations for a September hiked were dashed by the heightened volatility seen in August. A rate hike tomorrow cannot be considered a surprise, even if many think it is a mistake or that 76% is discounted, according to Bloomberg, which assumes the Fed funds rate will gravitate around the mid-point of a new Fed funds range. 

However, considerably less appreciated than monetary policy is fiscal policy developments.  At the end of last week, an agreement was struck to extend the spending authorization until midnight tomorrow in hopes of reaching a broader agreement on both spending and taxes. 

The new Speaker of the House Ryan appears to have helped facilitate the negotiations minimizing the antagonism between parties by not including provisions like the dismantling of the Affordable Care Act (aka Obama Care) or de-funding Planned Parenthood. Leaders from both parties seem to want a deal, ahead of next year’s election, which is not just for the presidency but also the entire lower chamber (House of Representative) and a third of the upper chamber, as well as numerous governors and state legislature. 

There appears to be a great deal of horse trading taking place. Rather than seeking to gore the adversary’s ox, there has been a change in tactics.  Now the tact is to be willing to make concessions to secure one’s own sacred cow, to mix metaphors.   

Of course, Congress can simply extend the deadline a few days, but the goal is to have an agreement this week. If this becomes unworkable, then a fall back option of simply extending the some 50 tax cuts that are set to expire. However, if an agreement is struck, it would arguably be the signature achievement of Congress this year.