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December FOMC preview and market check-up

Updated: Dec 14, 2022

Good morning, friends. We have an exciting day ahead of us! The Fed is expected to hike by 50 bps, and we're going to get a preview of what they see in terms of rates moving forward from the Fed's updated Dot Plot and economic forecast.

Because this is the last meeting of the year and possibly one of the most important in some time, I wanted to share my analysis on what's happened, where we are now, and why today is worth paying close attention to for everyone focusing on the bigger picture.

The most aggressive global tightening cycle ... ever

This tightening cycle has been one for the history books, with central banks around the world working in concert to reach monetary policies restrictive enough to destroy demand, in hopes of subduing inflationary pressure.

Source: T. Rowe Price

For its part, the Fed has hiked from a policy range of 0% to 0.25% to 3.75% to 4% since March. A staggering pace that has had a role in tightening financial conditions, and is beginning to show some potential impact in slowing demand and inflationary pressure. At least for now.

Today's policy decision expectations

Fed Funds Futures are showing a 79.4% chance of a 50 bps hike today, with 75 bps an outlier at 20.6% odds. I personally favor 50 bps as we've seen the Fed work to signal that it would be appropriate to slow the pace of hiking as early as the next meeting.

Source: CME FedWatch Tool

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