Data Could Trump FOMC

As for the Fed, no change in rates is expected, but traders expect the policy statement will be more hawkish than those of recent meetings, mostly to acknowledge stronger fourth-quarter growth and signs of strength in the housing market.

Indeed, "if you take housing out of the equation, you have a booming economy, inflation running higher than the Fed's 'comfort zone,' a strong consumer, wages pushing higher and unemployment running at full employment," says Marc Pado, chief market analyst at Cantor Fitzgerald. "Under those circumstances, the Fed will be scratching their head to find a reason not to raise rates."

But raising the rhetoric won't mean much to the markets unless the data also shock to the upside. A much-stronger-than-expected GDP or wage inflation report might suddenly make the Fed's tone more meaningful.

As it stands, the market is not contemplating any move by the Fed through most of 2007. Just a month ago, traders were debating whether the Fed would cut rates in March or May. As of late Tuesday, the fed funds futures market prices in less than 50% odds of a single rate cut by the end of the year, according to Miller Tabak. Even minor odds of a rate hike -- 4% in May -- have crept into the market to really confuse things.