A 75-basis point hike by the Fed today is already well-telegraphed; anything else would be a surprise.
Looking beyond today’s FOMC decision, markets are currently expecting another 100bps of hikes before 2022 draws to a close, with the Fed Funds rate reaching a year-end peak of 3.4%.
If Chair Powell signals today that policymakers are sticking with their “pedal to the metal” approach in quelling multi-decade high inflation, readying even more jumbo-sized hikes in the pipeline, that might send the US dollar into another rampage across the FX universe, while shoving spot gold into the sub-$1700 domain. That would also potentially result in more carnage for risk assets.
Ramped-up fears that the Fed’s ongoing rate-hike cycle may ultimately spell the next US recession could drag the S&P 500 back into bear market territory, on the notion that corporate earnings will wilt in the next economic winter.
