Fed Spoils New Year's Party

"If this is true, this is enormous," says Brusuelas. "This is the kind of stuff you see in the green book," the Fed's insider version of the so-called beige book report on economic activity, which is published between FOMC meetings.

Translation: To account for the overstated GDP in the third quarter (and most likely the fourth too, according to Brusuelas), headline GDP for the coming quarters will look lower than they really are.

If the Fed is worried about measurement, it'll be ever more vigilant in its data dependence, giving few clues about future meetings or policy decisions.

And "they'll be more hesitant to cut rates," says Brusuelas.

Unless, on the other hand, Friday's December nonfarm payrolls report confirms the ADP National Employment Report for December, which showed a decline of 40,000 jobs in the month. The consensus expects the Labor Department to report 115,000 new jobs for December.

One weak employment report doesn't make the case for a rate cut. But if the employment picture softens more, the markets might just get their desired cut. If inflation remains low and unemployment ticks up, it would be the Fed's triumphant "we kicked inflation and didn't kill the economy" rate cut to punctuate the soft landing.

Still, Wednesday's volatile session suggests the stock market isn't really ready to see bad news as good news yet. So if Friday's payrolls data are weak, don't expect a rally.

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