One month ago, when the market was getting excited about the imminent Fed rate hike, now due less than one week from today, Jefferies analysts flagged a red flag about the imminent rate liftoff: few, if anyone, know precisely how it will take place in practice.

We cited Jefferies economists Ward McCarthy and Thomas Simons who in their December 16 note wrote that “indeed the liftoff date, the Fed is running out of time to be ‘well before’ raising rates.” They added that as per the July 29-30 minutes, FOMC participants agreed the committee should provide additional information to the public regarding details of normalization well before first steps in reducing policy accommodation.

And yet, aside from some vague reassurance that the Reverse Repo – IOER corridor “should” work, and anextensive profile by the WSJ of the person tasked with conducting the liftoff, Simon Potter, there has been no detail on the topic. To Jefferies this is a glaring problem: “The lack of any discussion of liftoff logistics is puzzling to us and a potentially significant communication snafu.”

Jefferies added that the Fed has never attempted to raise fed funds rate under “IOER regime” so lack of confidence “is not unreasonable.” In the note, the authors write that still unresolved issues about liftoff logistics and normalization process include:

And then there is uncertainty “about the efficacy” as how combination of RRP and IOER rates will control fed funds rate.

The punchline according to Jefferies is that the idea that IOER will be primary tool to move fed funds rate is “wishful thinking” as IOER was initially intended to put floor under fed funds rate yet hasn’t been “an effective tool for doing so.”

Earlier today, Bloomberg picked up on this major caveat to the Fed’s experiment rate hike (experimental, because never before has a tightening been attempted with $2.5 trillion in excess reserves still sloshing around in the financial system), reporting that “as the Fed prepares to raise interest rates from near zero as soon as next week, bond investors are on edge. Beyond all the “is-this-the-right-move” questions that surround every increase, there’s a logistical concern: With so much cash sloshing around, will Fed officials be able to nudge rates as high as they want? Will the new-fangled tools they’ve created to engineer the move work, or instead sow the kind of confusion that can dent the Fed’s credibility and spur a broader market selloff?”