FOMC Preview: One Big Nothingburger Now That Treasury Is Doing The Fed's Job

After more than a year of "live" Fed meetings, many of which sparked furious market rallies or tumbles, tomorrow's FOMC decision will be very anticlimatic as the Fed is virtually certain to leave rates unchanged at 5.25-5.50% (with many banks calling the end to the Fed's tightening cycle, making the July rate hike the final one and - not surprisingly - also the peak of the market in 2023), so instead focus will fall on the statement and Powell guidance for the December meeting, especially since there are no new economic projections released tomorrow. Indeed, the market is currently pricing in just a 1% chance of a November hike and a paltry 27% in December, down notably from September when it was viewed as a more likely outcome.

In line with that, the Fed statement is expected to look more or less identical to September's, and likely maintaining its hawkish-leaning phrase, "In determining the extent of additional policy firming that may be appropriate..." While at the press conference, Powell will likely continue to point to tighter financial conditions (higher Treasury yields which have dramatically tightened financial conditions, and are seen as the equivalent of as many as three rate hikes) as justifying the rate pause despite the pick up in economic growth, while also warning that a further growth pick-up - from already lofty levels - could warrant further tightening. In other words, the Fed is done, as it is now Janet Yellen and the Treasury's ludicrous fiscal stimulus - and term-premium busting debt issuance - that is doing Powell's job for him.