We previously laid out not one but two lengthy FOMC previews (here and here), so for those who got the TL/DR vibes here today's final quick and dirty snapshot of what the Fed will say and what the market will do in response.

First, while a 75bps rate hike is assured (the Fed did not have Nick Timiraos prepare markets for either 100bps or 50bps today), there will be no summary of economic projections at this FOMC, and thus the Fed’s statement will be much more closely parsed for its intent on the evolving rate trajectory. Here is what traders will be looking out for, according to Bloomberg's Ven Ram:

Acknowledging signs of weakness:

The Fed is likely to tweak the language at the top to concede that the economy is showing signs of stress. Watch out for any changes to the statement, “The committee is highly attentive to inflation risks.”

The operative part of the statement isn’t likely to contain any major surprises

Watch for any signs of dissent to the 75-basis point move: there will likely be one or two:

There is of course the gaping spread between the Fed's own hawkish dot plot and the market's increasingly more dovish forecast which now see the terminal rate dropping to mid-2% by late 2023, about 100bps below the Fed's own forecasts. While there will be no new dots today, expect questions during the Powell presser seeking some reconciliation between the market and the Fed's own forecasts, and tied to that, any discussion by Powell whether the Fed will be doing away with its forward guidance entirely similar to the ECB.

It will get awkward if Powell is asked about the recent move in his favorite recession indicator - the spread between the current three-month bill rate and the 18-month forwards - which Powell discussed as follows in March: the near-term forward spread is “what has 100% of the explanatory power of the yield curve. It make sense. Because if it’s inverted, that means the Fed’s going to cut, which means the economy is weak."

Well, the problem as discussed previously, is that since Powell said this in March, the spread has flattened at a record pace, and is now on the verge of inverting and joining the 2s10s into deep red territory.

In that sense, as Bloomberg's Nour Al-Ali wrotes, "the measure has great value. If the market interprets an aggressively hawkish tone, participants may test Powell’s preferred tool and an inversion is possible. It’s worth watching commentary from Powell to see if the bank has accepted that a hard-landing is potentially the only way out of inflation. But will the market and policymakers be on the same page? Today’s decision will either set the two sides apart -- with a possible market tantrum -- or bring them closer together"

Then there is the question of whether the Fed is hiking into an official recession. While we don't get the actual first Q2 GDP estimate until tomorrow morning, the final Atlanta Fed GDP tracker published this morning rose modestly, but not enough to prevent a technical recession, as it now sees a Q2 GDP of -1.2%, making it the second consecutive negative GDP quarter. Expect a lot of backtracking by Powell, and references to the White House's "new and improved" recession definition.

On July 27, the #GDPNow model nowcast of real GDP growth in Q22022 is -1.2%. https://t.co/T7FoDdgYos #ATLFedResearch Download our EconomyNow app or go to our website for the latest GDPNow nowcast. https://t.co/NOSwMl7Jms pic.twitter.com/oMg171agqi

— Atlanta Fed (@AtlantaFed) July 27, 2022

Turning to markets, it's worth recalling that today's FOMC takes place after the biggest stock-bond rally in more than two decades amid growing expectations - first floated here - for a Fed pivot later this year. As such, any dovish messaging by Powell today may be lost on the market as we get a case of "sell the news."

Still, as Bloomberg notes, fixed-income and equity camps are likely expecting that Fed Chair Powell’s hawkish mission will be tempered by signs inflation has peaked as an economic downturn nears, yet as we touched upon earlier, some banks remain skeptical that Powell will make even the slightest dovish relent.

“The market has shifted to bad-news-is-good-news again, the whole idea that central banks will pivot because the data is so bad,” Goldman Sachs Group Inc. strategist Christian Mueller-Glissmann said in an interview on Bloomberg TV. “We’re going back to a template that we know well.”

Wagering on a friendly Fed is also too premature a bet for both Bill Ackman, whose book is clearly axed in a hawkish direction...

Tomorrow, Powell is likely to be asked: “Market pricing implies that the terminal FF rate will peak at 3.4% in 12/22 immediately declining thereafter to 2.7% by YE ‘23. What factors would cause the @federalreserve to immediately lower rates after just raising them?” Interestingly

— Bill Ackman (@BillAckman) July 26, 2022

... as well as Barclays strategist Ajay Rajadhyaksha, who believes that policy officials would try to avoid the mistake they made in April when central bankers talked down the size of rate hikes that would be ultimately needed, prompting bond traders to question the Fed’s commitment to its inflation target. Treasury yields spiked, spurring losses across assets. The S&P 500 dropped almost 9% for the worst month since the pandemic crash.  

“The Fed has seen what happens when it prematurely declares victory over inflation and is unlikely to repeat that mistake,” said Rajadhyaksha. “Stocks and bonds are both hoping that the Fed will pivot away from its commitment to overtightening. It’s a hope that is likely to be dashed this week.”

Bottom line is that it all depends on what Powell says, which is anyone's guess, meanwhile looking at history gives little additional insight because as Chris Ciovacco points out, the "Fed has raised rates 3 times this year. S&P 500 was up 2.24%, 2.99%, 1.46% on those days. Eventually, followed by lower lows in each case. Current case TBD."

Fed has raised rates 3 times this year. S&P 500 was up 2.24%, 2.99%, 1.46% on those days. Eventually, followed by lower lows in each case. Current case TBD. #NoAssumptionsEitherWay

— Chris Ciovacco (@CiovaccoCapital) July 27, 2022

For FX traders, the recipe is a little simpler:

• If the Fed is hawkish -> Buy long bonds and USD versus peers
• If the Fed is dovish -> Sell long bonds and take profit on long USD positions

Quick recipe ahead of the Fed meeting:

If the Fed is hawkish -> Buy long bonds and USD versus peers

If the Fed is dovish -> Sell long bonds and take profit on long USD positions

— AndreasStenoLarsen (@AndreasSteno) July 27, 2022

Ironically, the biggest winner may be bonds: as DB noted earlier, if it hadn't been for FOMC days, the 10Y would have been some 500bps higher since 1990...