NEW YORK (TheStreet) -- If the Federal Reserve wants an orderly "return to normal" as it raises rates, it's going to have to start talking more about the strong dollar.
The Fed's policy-setting Federal Open Market Committee meets this Tuesday and Wednesday, and almost everyone will be watching closely, trying to get a handle on what the central bank has in store for the financial markets.
The earlier betting was that the Federal Reserve would begin its effort to raise short-term interest rates at this meeting.
Right now, the betting for an interest rate hike has moved to September and possibly even later. The U.S. economy just does not seem to be strong enough in the eyes of Fed officials to begin raising interest rates.
The Federal Reserve wants to get back to "normal," whatever that is. The Fed has done a lot of thinking on how it might accomplish this "return to normal," but, as Fed officials have admitted, they have never had such a challenge as the current one. In this environment, one thing they need to do is start discussing the value of the dollar -- something they haven't really done publicly so far.
As of last Wednesday, the Fed had reduced the amount of excess reserves in the banking system by almost $160 billion since Oct. 15, 2014, the date on which excess reserves peaked at the end of the Fed's latest round of quantitative easing.
This reduction seems to be a part of the Fed's efforts to modestly reduce the excess reserves in the banking system before any attempt is made to increase short-term interest rates.
For example, on June 3, excess reserves in the banking system were $172 billion lower than they were on June 10 as the Fed added excess reserves to banks throughout the week, almost solely by managing its portfolio of reverse repos and term deposits.
In removing reserves from the banking system, the Fed is being extraordinarily cautious because it does not want to reduce liquidity in the banks if the banks still want that liquidity on their balance sheets.
Sooner or later, however, the Fed is going to have to start raising short-term interest rates and making a strong case for how it's doing that.
That's where the discussion of the greenback comes in.