That's the case for the Fed to quit. I'm in that camp, personally. It's not like the Fed can't raise rates whenever they want to anyway. If they pause for a month or two and regret it, you can always go back and raise some more. Would such a plan have any drastic repercussions? I doubt it. And let's not forget, even though the market gets on a regular timeline with the FOMC meetings, Bernanke and Co. can move between meetings if they need to.
The way I see it, the stock market has stabilized after getting down to S&P 1,225, 8% below the highs. It has a little room to rebound, given the chance. If we get more of the same later this week from the Fed, and by that I mean a 25 bp hike and a similar statement to recent ones, equities will have a tough time holding at current levels. Uncertainty is always bad for stocks. If we get a signal that this hike is the last one for a while, I think we can get a brief rally that might get us to back close to 1,300 on the S&P 500. At that point, I'd probably do some selling.
Another less likley option, but a good one nonetheless, would be to move 50 bp this week and signal a pause. This would satisfy both those looking for a hawkish stance on inflation, as well as a pause to observe the ultimate effects of all of these hikes. I think the market would rise in this scenario as well. I hope Bernanke decides to take a wait and see approach, but we'll just have to, well...wait and see.
S&P 500 2-yr chart: