The FOMC is expected to announce another jump in its Fed funds target rate tomorrow. Much of the financial media is obsessed with how high. Will it be 75 bp? 100 bp? Finster says … unless you’re a banker, it doesn’t matter.

For the overwhelming majority of us, the outlook is much more important. If the hike is 75 bp and the statement or press conference tips more of the same at the next meeting, it’s a more hawkish outcome than if the hike is 100 bp and they say that’s all for now. 

Even then, most of us are better off watching the Treasury yield curve than trying to handicap the number and distribution of 25 bp lumps of Fed funds. Very few of us can borrow at the Fed funds rate and can’t even lend to the bank at that rate. But the multi-trillion-dollar UST market is one of the world’s widest, deepest and most efficient and we can and do invest in it.

The information embedded in the yield curve is worth more than a thousand essays on the future of Fed funds, and the Fed itself arguably follows the bond market as much as the bond market follows the Fed. For all the talk about growth, recession, inflation and unemployment, job number one for the FOMC tomorrow is to bring overnight rates more into line with the rest of the UST yield curve. The FOMC will do that; the only decision it will make is how fast and in what increments. And all that is knowable and meaningful about that will be reflected in the yield curve too. It knows more about what the Fed is likely to do than even the Fed itself does.