How much of the Fed decision is already priced into the market?

$Invesco QQQ Trust(QQQ.US)$ $S&P 500 Index(.SPX.US)$ The latest round of US inflation data has further cemented the likelihood that an increase in the rate of tapering will be announced after the FOMC meeting tomorrow, opening the door to an earlier rate hike. But how much of this expectation is already priced in?

The market seems to be almost certain of an extremely hawkish pivot, resulting in a decent amount of profit taking, particularly in tech. The NASDAQ is already down around 2% this week, trading near its 50-day EMA, as investors naturally expect growth stocks to suffer in this higher interest rate environment. However, if the Fed policy changes aren’t as aggressive as currently anticipated, buyers could see current prices as a good re-entry point.

Of course, monetary policy won’t influence the market in isolation. It needs to be looked at in the context of the central bank’s economic outlook for 2022. Should the Fed hold its current policy due to uncertainty surrounding Omicron's impact on the economy, we could see a fresh round of selling hit the market.

All trading carries risk, so it will be important to fully understand everything that is said tomorrow before making any decisions.