“It’s like Alan Greenspan saying to hell with New Orleans, that Hurricane Katrina was a minor happening,” one West Coast trader says. “We don’t need another rate increase now.”

That, in effect, is his reaction to tomorrow’s widely expected hike in interest rates at the Federal Open Market Committee meeting. Broadly anticipated is a 25 basis-points boost in the federal funds rate to 3.75%, which would mark the Federal Reserve’s 11th consecutive rate increase in the past 15 months.

But wait a minute, there’s also a small contingent of dissenters, among them a couple of well-regarded investment figures, such as a Merrill Lynch economist, David Rosenberg, and an investment strategist, Bill Rhodes of Boston-based Rhodes Analytics. Both take a different tack from the overriding view. Each, in fact, sees the Fed going on hold at tomorrow’s session.

The fed fund futures, though, are betting they’re dead wrong. They’re trading at a level that suggests an 86% likelihood of a 25 basis-points rise.

Mr. Rosenberg readily concedes he’s on shaky ground with his prognosis, saying, “It is looking dicey right now since the Fed’s body language is not hinting at a pause.”

That being the case, why then is he suggesting a pause?

Because if the Fed tightens in this uncertain climate, it will be tightening into what will clearly be a soft economic backdrop for the next two quarters, he says. Further, he points out, a rate increase would inexorably raise the risks of a policy misstep, as well as a 2006 recession. He also cites another consideration – the fact that housing is rolling over, which, he notes, is barely making the back pages of the financial press.

Mr. Rhodes, who doles out advice to more than 150 institutional investors with more than $1 trillion of assets, also believes a rate hike could be damaging, which is why he thinks it may not happen. Pointing to the devastation from Katrina, he asks: “Where do you get the liquidity to rebuild New Orleans? Certainly not from raising rates.” Despite the overwhelming expectation of another rate hike, Mr. Rhodes believes such a move would also send the financial markets a wrong signal, since it would precede a temporary slowing in the economy.

“Maybe in this economic cycle we’ll see rates rise another 50 basis points, but basically I think the Fed is done,” he says.

While some Wall Streeters, such as Mr. Rhodes, think the economic ramifications of Katrina could give the Fed pause for thought tomorrow, they’re more than dwarfed by an overwhelming number who believe there’s no way the Fed will go on hold at this juncture, given rising inflationary worries, a generally strengthening economy, and $60-plus a barrel oil.

Further, many believe a 25 basis points increase is in store for the market at each of the year’s remaining three Federal Open Market Committee meetings. In general, Wall Street sees the fed funds rate wrapping up the year at 4% to 4.25%. But one money manager, Leonard Mohr of Los Angeles-based MCR Associates, thinks otherwise. Not only that, he’s convinced Fed tightening is far from over. His decidedly contrary outlook is pretty bleak.

Citing renewed economic vigor, the stimulus of a $200 billion rebuilding of the Gulf Coast – whose economic impact from Katrina he thinks will be temporary – and modest but increased inflation, he’s sticking to a prediction he gave me a few months ago that the fed funds rate will end the year at about 5% and climb to about 6% to 6.25% in the first quarter of 2006.

“Contrary to general thinking, the threat of a more aggressive Fed,” he believes, “is by no means yesterday’s news.”