Fed Preview: 25bps And Then "The End Is Very Much In Sight"
Cutting to the chase, ahead of the Fed's decision (due at 2pm, Powell press conference 2:30pm, no projections so no new dots so no way to push back more on market expectations for sub-5% terminal rate), the key question - as Goldman puts it - is "what the FOMC will signal about further hikes this year" since 25bps tomorrow is in the bag and what matters to stocks is i) will this be the final rate hike and ii) how long will the Fed keep rates here before starting to cut.
"The Fed is approaching a critical inflection point and whether they finish with 25bp tomorrow (at 4.75%) or 25bp on 3/22 (at 5%), the end is very much in sight (but what really matters is how long they hold this level which i am betting will be much longer than most currently expect)." - Goldman trader John Flood
As Goldman further discusses in its FOMC preview (excerpted below, full note available to pro subs), "we expect two additional 25bp hikes in March and May, but fewer might be needed if weak business confidence depresses hiring and investment, or more might be needed if the economy reaccelerates as the impact of past policy tightening fades. Fed officials appear to also expect about two more hikes and will likely tone down the reference to “ongoing” hikes being appropriate in the FOMC statement."