Fed Holds Key Rate Near Zero

"And I'm optimistic; I think the economy has turned around," says Ghadar. "But as long as the economy is as slow as it is -- even though we're starting to see an uptick -- the Fed is going to be really reluctant to raise the rates."

He notes that while policy makers believe the economy grew 2.5% to 3% in August, up from 1% in July, the increases are coming from the economic doldrums. He believes the Fed will avoid curtailing growth until it has been sustained.

Jerry Webman, chief economist for OppenheimerFunds, believes the Fed will be closely watching the M2 money-supply metric, which tells how much cash is in circulation, before making an interest-rate move. He notes that while the overall money supply has expanded from the flood of federal cash, banks aren't really using those funds to lend.

"The banks' money is under the mattress at the Fed right now," he says.

Webman says investors are watching several things -- including the Fed's balance sheet, the wind-down of its liquidity programs and the interest rate it pays banks for their reserves -- perhaps more than the target rate itself. The Fed's expanded authorities have lessened the focus on the prime rate, which had been "the biggest decision for the past 25 years," he says.

Webman expects the rate to begin moving up within the next year, but says it's too hard to pin down a precise time yet.

"I hope it's sooner," says Webman, "because I hope the economy starts improving sooner."

-- Written by Lauren Tara LaCapra in New York.