The 'ole FOMC 'sell the fact' hits again

We've seen this one before.

You can game out the Fed decision as much as possible but the market loves to punish both sides of the trade. That's exactly what we're getting at the moment as the US dollar recoups all its FOMC losses, and in some cases more than that.

I think the bond market captures some of the worry. US 10-year yields are now up 6 basis points on the day to 3.69%. Some of that came before the decision but yields are still higher in the aftermath.

I believe the thinking there is something I warned about before the Fed: The idea that by cutting more now, the Fed won't have to cut as much later, leaving the terminal rate higher. That's also something you could argue is bullish for the US dollar.

It comes back to what Powell said at the start of the press conference: They want to preserve the strength of the economy. If the Fed is successful in that, it's ultimately good for the US dollar and means we won't return to the era of 1-2% Fed funds and instead will be in a +2% regime. I don't think that's the case in Europe or many other G10 currencies.

That said, I don't think this debate is over. At the end of the day, 50 bps is still 50 bps and the Fed could very well be behind the curve, particularly if the US fiscal picture tightens next year.

Increasingly, the best trade on Fed day is to wait for the dust to settle because these kinds of whipsaws are increasingly common. When I look out to next September, the Fed funds market is pricing in 189 bps in additional easing which is basically the same as the 187 bps before the decision.