For much of the past 18 months, there had been plenty of intrigue and anxiety over any single Fed announcement: will they hike? will it be a 50bps or 25bps hike? Will the Fed be hawkish or dovish? Will it hint at more actions in the future? What will Powell say at the presser?
Well, not this time: for better or worse, the market has decided that the Fed will hike 25bps tomorrow and that will be it for this tightening cycle, which sooner or later will push the economy into contraction - and presumably send inflation back to the Fed's 2% target - and lead to an easing cycle some time in 2024. In short, there will be no surprises, and that's not just in theory: according to Goldman's Cullen Morgan, ahead of the Fed tomorrow, the options market is implying a paltry 75bp move; this is the lowest FOMC straddle since the Fed began its hiking cycle even with the added event premium from MSFT and GOOGL.
