I don't think it's such a bad idea actually. Everyone hangs on the every word of the Fed's intentions, why not actually move it a little bit instead of throwing out an obfuscation that normal people can't understand and even the oracles disagree on the true meaning of? Note: I fully support the concept of the Fed and completely disagree with this concept that somehow 5% interest rates are a magic number ordained by god and passed down on stone tablets. That doesn't mean they can't do a better job at what they're attempting to do, and the OP has a decent point I think.
I agree...I've thought about the same thing for quite a while now. If we moved rates up at a snails pace (.025 a mo.) this past year, the markets probably would've hardly reacted, yet rates would be higher...everybody wins! Of course this is just theory. I still believe this whole thing is going to turn ugly...eventually!
The US and European monetary policy apparatchik have so much advanced "telegraphing" built into their way of operating that by design it's vague to the public but already a known to the institutional players.
Watch overnight repo rate and Eonia. Very micro structured but it does move every so slightly on a daily basis and on rare occasion.. every once in a blue moon... it really fucks with the swap market. Direct all your interest rate questions to Marty. Put his name straight in the header.
It is currently priced into the market. https://www.cmegroup.com/trading/interest-rates/files/understanding-eurodollar-futures.pdf http://www.cmegroup.com/trading/interest-rates/stir/eurodollar_quotes_settlements_futures.html
I'm afraid that the Fed has gotten themselves in so deep with asset inflation QE.XXXX as a very poor dysfunctional analog to economic stimulus that faster unwinding would in their minds undo all the printing and buying and spinning that they've undertaken in recent history.
Firstly, this has been discussed on and off for a few years now in the mkt etc... So the OP isn't the first to come up its this cunning plan. Secondly, like I said, there's a logical argument for why the "step" should be lower nowadays. However, that said, it's still crazy, IMHO. Finally, you need to recall that the money mkts are generally a little more complicated than just the Fed and its target rate. There are lots of moving parts. For instance, rates have actually gone up quite a bit this year, if you look at LIBOR (and similar). In effect, there's been a sneaky Fed hike or two, w/o the target rate moving.