FOMC rate decision is the main focus of the day and another jumbo rate hike is expected. Based on current market pricing, there is 82% chance of a 75bps hike to 3.00-3.25%, and just 18% chance of a 100bps hike to 3.25-3.50%. Thus, there is little chance for Fed to upset the markets.
Overall rhetoric should be unchanged that tightening is set to continue while Fed is committed to bring inflation down to target. The bigger questions are on the new economic projections and the dot plot. Some hawkish surprise could be seen there, which indicates higher terminal rate for current cycle, and a longer period to stay there.
Here are some previews:
- FOMC Meeting Preview: 100bps Unlikely, But Longer Rate Hike Path in Play
- Another Fed Hike is Coming; Mind the Dots
- Is the Fed Preparing to Crash the Markets, Or Will it Give Them a Helping Hand?
- Fed Preview: Fast Pace Hiking Cycle Continues
- September Flashlight for the FOMC Blackout Period
US 10 year yields rose another 0.81 to close at 3.571 overnight, break through prior high at 3.483. The development confirmed resumption of up trend from 2020 low at 0.398. Next target will be 61.8% projection of 1.343 to 3.483 from 2.525 at 3.847. Hawkish surprise in today’s FOMC projections could accelerate TNX’s path to this target.
