Here's What Matters on Fed Day, Part 2

There continue to be headlines regarding some sort of "mobilization" of troops with the most recent seeing Putin claim that the West is threatening Russia's "territorial integrity."  Is there an "OK Vlad" equivalent to "OK boomer?"  No one cares at this point--least of all financial markets until words translate to quantifiable material impacts. 

And sadly, for the market's purposes, it's less about the needless loss of life and more about the impact on commodities prices and supply chains.  If markets were ultra concerned about the latter, we likely would have seen oil prices do something other than simply moved back up to yesterday morning's highs.

But we're market watchers and not a global military strategists, so we don't know what we don't know--only that the market isn't looking too concerned by the latest batch of rhetoric.   

Rather, the market's primary concern has been and will continue to be today's Fed events.  These are as follows:

• 2pm ET
  • Fed Policy Announcement
  • Fed Summary of Economic Projections (which includes the dot plot of rate hike forecasts)
• 2:30pm ET
  • Press Conference with Fed Chair Powell

The announcement itself has one key component: the rate hike decision.  It will probably be 75bps, but there's an outside chance of 100bps.  Markets price the probability of 100bps at just under 20%, but we expect the Fed to give it more than 20% of its consideration, even if they ultimately side with the market consensus. 

The rate hike will probably not be the key determination for bonds.  Rather, the composition of the dots (Fed rate hike forecasts from individual members) and Powell's press conference have the power to completely counteract or greatly accelerate whatever the takeaway may be from the rate hike itself.