Fed Preview: Its "Volcker" Until Neutral

Going into the May FOMC meeting tomorrow there are not a lot of things the market doesn’t know. The market knows the Fed is going to raise rates by 50bps. The market knows that the Fed will announce the beginning of QT. The market also knows that the next move is not back to the Fed’s usual 25bp pace, and that the “expeditious” return to neutral infers a faster pace than traditional cycles. With that said, the market is taking very seriously a 75bp increase in June and the Fed returning to their median estimate of neutral at either September or November. The question going into the May FOMC meeting tomorrow and especially Powell’s press conference, is there room for the Fed to really surprise hawkish given the extent of the pricing?

To me the hawkish trade isn’t over, a few reasons why: