I wanted to do a preview for the upcoming FOMC meeting and share my thesis on what to expect. The FOMC rate hike decision is set for the Wednesday November 2nd, 2022 at 2pm EST.
The consensus for the November rate hike is another 75 BPS hike. As you can see from the above figure that would mean we are expecting 4 straight 75 BPS hikes in a row. From 1% in May to 4% in November, which is right on pace to what the summary of economic projections showed us at the last meeting.
It is important to note that we are not getting an update on the economic projections at this meeting. In the last meeting, we did get that summary updated, which ended up being the critical data to look at. Not many folks recall, but in the last FOMC meeting, the market was rocketing higher as JPow spoke during his press conference in the early going. He kept using bullish buzzwords with his answers and the market was enjoying it. Once he was done speaking, the market started digesting the economic data projections and down we went.
So for this meeting, we only have the rate hike statement and then JPow's presser to go off of. That makes this FOMC meeting all about how JPow talks and if he hints at what will come in the December meeting. Below are my bullish and bearish arguments for the November FOMC meeting:
Bullish Thesis -
No summary of economic projections
No shock regarding the rate hike. 75 BPS hike is fully expected
Powell is not pressured here to be overly hawkish. The path of rate hikes is on schedule for what he has said he wants to do.
If we get a lack of clarity for the December meeting, that will allow the Fed Pivot narrative to continue on as JPow did not rule out the 50 BPS hike for then.
Midterms are a week after the meeting, this historically is a bullish catalyst.
The lack of commitment to let us know about the December meeting is there since JPow can allow a few more jobs reports and inflation reports to come in before having to decide December's rate hike.
Bearish Thesis -
No impactful change in core inflation, so the motivation for JPow to be dovish is small
The market rallying into the event, can give JPow ammunition to be as hawkish as he was in Jackson Hole to ease market expectations.
Comment below if you have any additional bearish thesis' cause I am struggling here. And I am super bearish
How I am playing it -
I am leaning that this is a bullish event on Wednesday. I will look at entering 50% of my call position on Monday and hold through JPow's event. If it is indeed a bullish event, I will look at adding the rest of my position afterwards.
I am currently collecting March puts, so if I am incorrect about the calls, I am still ok given that position.
