Strong NFP report increased the SOFR curve 3.25-5.5 bps out to Dec27. Moved rate hike odds up ~14% for September and 15-20% higher expected FF across the curve. FF Futures/SOFR are now putting the odds of a 25 bps hike at around 2-1 The FOMC blackout starts tomorrow, and this is the last big datapoint before the meeting so it's likely the derivative markets will be strongly forecasting a rate hike at meeting time. The FOMC rarely surprises the market at a regularly scheduled meeting. We have detailed data on "surprises" because the difference between the FOMC action and the futures expected rate is used as an identification tool for academic papers studying the effect of policy rate changes on the economy. One would have to go back to Dec 1994 to find a time when the market expected a rate increase at a regular scheduled meeting and the FOMC did not raise rates.

It's FOMC eve and the market is calm. The Oct SOFR midcurve (dec27 contract) options have a risk reversal of -.05. Not a lot of fear that the SEP dots or the statement will move expectations about where the tightening cycle ends. The S&P500 ES options the expire tomorrow have a VIX of 19.1% which is fairly low for a 1-day VIX before a big economic news event. Likewise, tail risk is low with a risk-reversal of -2.8 which is around the 50th percentile over the past year but is notably low for the eve of a key economic report. Investors aren't paying up for tail risk ahead of the FOMC announcement.

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