NEW YORK (CNN/Money) - The Federal Reserve and oil prices could cause even more volatility in stocks than normal Tuesday, as investors carefully watch the most unpredictable Fed meeting in recent memory and a new hurricane threat to oil facilities along the U.S. Gulf Coast.

U.S. stock futures were up in early trading, indicating a higher opening for stocks, lifted by a sharp sell-off in oil prices that followed Monday's $4 a barrel spike in oil prices.

The latest forecast early Tuesday is for Tropical Storm Rita to turn south and miss the Houston area, where many refineries are located. But the storm, which is expected to move through the Florida Keys on Tuesday and then strengthen to hurricane status, is still several days from landfall along the Gulf Coast.

The October light crude futures contract for NYMEX lost $1.16 to $66.23 a barrel in electronic trading, while the November contract for Brent crude fell $1.12 to $64.49.

At 2:15 p.m. ET Tuesday the Federal Reserve will announce its latest decision on short-term interest rates. Economists are again looking for a quarter-percentage point hike in the Fed Funds rate, raising the benchmark to 3.75 percent.

Immediately after Hurricane Katrina hit in late August there had been some expectation that the Fed might leave rates unchanged at this meeting for the first time since May 2004. Investors will be watching the Fed statement for clues of a possible pause in future meetings.

Anthony Chan, senior economist for JPMorgan Chase Asset Management, said the latest oil spike has made the much-anticipated Fed meeting a secondary story for investors, especially because of the significantly reduced hopes for a pause by the Fed.

"I think that if the Fed goes back to normal language about 'measured pace' (of rate hikes), it becomes a secondary story," said Chan. "It is only becoming a big story because of the uncertainty about what they were going to do. The equity markets will be looking for language here again. If it talks too harshly about inflationary pressures, it could be unfriendly for stocks."

The earlier agreement by North Korea to abandon its nuclear weapons program helped lift Asian stocks, but Tuesday the North Koreans made a new demand that could unravel the day-old agreement. Major European markets were higher in early trading.

Treasury prices slipped slightly, raising the yield on the 10-year note to 4.25 from 4.24 percent late Monday. The dollar lost ground against the euro and yen.

The Commerce Department reported Tuesday that housing starts fell by a larger-than expected 1.3 percent in August to a 2.01 million annual rate and was little affected by the damaging effects of Hurricane Katrina, which slammed into the Gulf Coast a little more three weeks ago.

Economists surveyed by Briefing.com forecast that housing starts slipped to an annual pace of 2.03 million from 2.04 million in July.

Building permits, seen as a measure of builders' confidence in future demand for new homes, slipped to an annual pace of 2.12 million from 2.17 million in July. Economists' forecast had been for permits to fall to a 2.13 million rate.

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