Takeaways
- The Fed is not the trade this week — energy is. With Jerome Powell holding steady, the real macro driver sits in oil and geopolitical flow risk, not policy rhetoric
- USD rallies are tactical, not structural. Any post-Fed strength looks more like a fade opportunity unless oil forces a genuine repricing of the rate path
- Equities are pricing perfection. With downside tails underpriced, staying selectively long while carrying protection remains the smarter way to navigate this tape
Trading the Fed If You Sat on Goldman’s Desk
The Fed walks into this meeting with the tape already priced for inertia. The FOMC is expected to steady with near-unanimous agreement, likely just a single dissent from Miran, while the statement leans on familiar language. Forward guidance remains unchanged, but the tone subtly shifts to reflect firmer labour data and stickier , with the now-standard nod that inflation remains elevated as the war in Iran continues to distort the outlook.
The leadership backdrop is quietly shifting. With the DOJ stepping away, the runway for Kevin Warsh opens up, but the market may be too quick to price a dovish pivot. Warsh has historically aligned more closely with Powell on inflation discipline, and even with a new chair, a divided FOMC limits how aggressively policy can be steered. This is less a regime change than a continuation with different optics.
On the macro side, the inflation pulse is still running hot. Most desks expect both and to push above 3 percent, driven in part by higher oil feeding through the system. That likely forces an upward revision in the Fed’s inflation projections, but the reaction function remains asymmetric. Goldman’s base case still leans more dovish than market pricing, looking for two 25 basis point cuts into year-end, while internal gauges of wage pressure and inflation breadth remain contained. In other words, the bar for hikes is high, but the runway for cuts is narrow and conditional.
Below, I share various views from across Goldman’s trading desk, offering a window into how the Street is positioning around the FOMC decision. BTW, I’ve reworked them all for better clarity:
Brian Bingham – Short Macro Trading: The base case is a steady hand. The statement stays largely unchanged, with Iran-related risks framed as “uncertain” and no meaningful hawkish escalation on inflation language. Jerome Powell is expected to echo his March posture, firm on inflation credibility while downplaying both SEP signalling and downside risks. But with just 5bps of tightening priced through December, the hurdle to reprice a true hiking cycle is high.
The front-end is effectively leaning into a Goldilocks glidepath into the June SEP: Hormuz reopens cleanly, drifts back toward $80, Kevin Warsh clears confirmation, and payrolls cool just enough to avoid reigniting labour momentum. Any break from that script tilts the distribution in one direction — higher rates, fewer cuts, flatter curves.
Positioning reflects that asymmetry. The focus is on expressions insulated from near-term headline noise through June. On the terminal view, structural forces matter more than cyclical ones, with AI-driven labour displacement seen as a stronger anchor than upside inflation risk. Dec/Jan FOMC flatteners are favoured as a low-VaR way to express that end state, while the persistence of steepness in / appears inconsistent with where terminal pricing should ultimately settle. Outside the U.S., the December Bank of Canada is a preferred long, with the market pricing in hikes that seem misaligned with a policy path more likely to remain on hold.
Aryaman Jain and Mitchell Cornell – Volex Trading: The Fed lands as a placeholder, not a catalyst. Expect a clean hold with Jerome Powell reinforcing the wait-and-see stance, leaning on the same playbook as markets try to handicap how the Iran conflict feeds into inflation. The labour data has held up, but the balance of risks still tilts toward softening beneath the surface, which keeps the bar for hikes elevated even if headline prints run hot.
Where it gets interesting is in the vol complex. After a stretch of suppressed realized movement, the market is sitting on compressed gamma and that rarely holds. As the range starts to loosen, there is likely a renewed bid for convexity, particularly with uncertainty still anchored to the Strait of Hormuz and the stability of energy flows. The curve itself has behaved in an orderly fashion, suggesting positioning was relatively clean into what is being framed as an inflation shock, but that calm feels fragile.
Expect skew to reprice, with demand building for payer protection as the market hedges against upside rate risk. The left-versus-right normalization has already reset a fair bit, opening the door to profit-taking or re-engagement in bear-flattener structures. Until there is clarity on shipping lanes and energy stability, rates are effectively trading under a geopolitical overlay. For now, the market is not trading data; it is trading the outcome of negotiations.
FX:
Carlie Ladda – G10 FX One Delta Trading: The desk leans toward a marginally hawkish read from the Fed, enough to spark a knee-jerk USD bid, but not enough to sustain it. The bigger forces are elsewhere. Earnings risk, Iran headlines, and month-end flows are all competing for control of the tape. In that mix, the Fed feels like a secondary input rather than the driver. The bias is clear: fade strength. If the dollar catches a post-Fed lift, it is viewed as an opportunity to sell into rather than the start of a new trend.
Lexi Kanter – FX Research: The base case is a clean hold with Jerome Powell reinforcing the wait-and-see stance as the Iran conflict continues to blur the outlook for both growth and inflation. Policy inertia, combined with an increasingly unstable relationship between rates and FX, points to a lower volatility event for currencies this week. Even with elevated uncertainty around the reaction function, the directional bias is softer than current pricing suggests. The tightening premium embedded across G10 rates looks stretched, and if energy markets stabilize, the adjustment is more likely to come through lower outright rate expectations rather than a sharp repricing of differentials. That dynamic naturally dampens the impulse for sustained FX moves, leaving the dollar without a strong catalyst and reinforcing the idea that rallies are better sold than chased.
Equities:
Vickie Chang – Macro Research: The Fed remains a sideshow to the real driver of rates: the evolving balance between growth and inflation. Expect a hold, with Jerome Powell sticking to the wait-and-see script, but the rate asymmetry has narrowed. The easy long front-end trade has already been picked over. From here, the market is far more sensitive to energy. If oil cools, there is room for rates to drift lower again, but if the energy shock re-intensifies, rate-sensitive assets are more exposed than they were a few weeks ago.
For equities, the real risk is not the decision but the tone. The market has largely looked through the conflict, pricing in a soft landing even as commodity risks build beneath the surface. If Powell leans more cautious on inflation tied to energy, that complacency gets challenged. The downside tail looks underpriced in that scenario. The playbook here is to stay selectively long while carrying protection, leaning into shorter-dated, deeper-downside hedges. The real catalysts are not the Fed or the data, but Iran and mega-cap earnings.
Robert Blank – Index Derivatives Trading: In equity land, the Fed barely registers. You could be forgiven for not even knowing there is a meeting. With no dots and the DOJ stepping away from Powell, this is being treated as a non-event. The spotlight is firmly on earnings, with semis driving upside momentum while software continues to lag.
The volatility surface tells the story. The implied move for the Fed day sits around 77 basis points, while the following session, loaded with earnings, is closer to 1.15 percent. That gap is where the real risk lies. After the recent vol compression, short-dated vol has been pushed down to levels that look attractive in either direction. The desk view is that vol should hold firm into and through the Fed, with the real repricing likely to come once earnings hit the tape.
Credit:
Eric Wu – Macro Credit Index Trading: Credit is stuck in the middle of the cross-asset tug of war. Spreads have ridden the ceasefire narrative tighter through April and held those levels even as yields retraced, leaving the setup into this FOMC more ambiguous than directional. The technical bid is still there, with asset managers consistently reaching for risk despite a heavy primary calendar, but the follow-through has been muted.
Credit has effectively decoupled from the equity exuberance. While the S&P 500 pushes toward fresh highs, credit spreads have moved sideways, pinned in a tight range since early April. That hesitation reflects a few underlying frictions. European credit remains under pressure as energy risks linger, implied volatility is still elevated with a flatter index curve structure, and demand for hedging has not gone away, particularly in longer-dated IG exposures. At the same time, systematic flows have been far less aggressive than in equities, with CTAs showing a smaller momentum impulse and less need to chase.
The result is a market that grinds but does not chase. For those leaning defensive, positively convex hedges in CDX curves make sense as protection against a repricing of risk. For those leaning constructive, the trade is less about outright beta and more about carry, using short vol and short spot expressions to harvest premium as implied volatility slowly normalizes in a world where tail risk is fading but not fully extinguished.
How Am I Trading The Fed?
But of course, the real question isn’t how Goldman’s desk is lining it up — it’s how Stephen Innes is actually trading this thing. HAHAHAHA
I’m not trading the Fed. I’m trading the gap between what the Fed thinks it controls and what the market knows it doesn’t.
This is a classic late-cycle illusion. Jerome Powell can hold the line, dress it up in wait-and-see language, and lean on labour resilience, but the real policy lever right now is floating somewhere in the Strait of Hormuz, not Constitution Avenue. Oil is the dealer, the Fed is just playing the hand.
Rates here are a trap if you chase them in that direction. The market has already priced inertia, and with so little tightening left in the curve, you are not getting paid to bet on a hawkish surprise. That asymmetry is gone. If anything, I lean toward flattening bias expressions into year end, not because I love the macro, but because the distribution skews that way if energy volatility lingers.
FX is cleaner. Dollar strength on a marginally hawkish read is something I would fade. The market wants to buy USD on headlines, but it cannot hold those gains unless oil keeps screaming higher and forcing a real repricing of the Fed path. Without that, rallies look like liquidity events, not trend shifts.
Equities are where the real mispricing sits. This market is trading as if the energy shock is a rounding error, not a regime risk. That is fine until Powell even hints that inflation risk from commodities is not transitory. The downside tail is too cheap. I stay selectively long, because the tape is still being carried by AI and earnings, but I am carrying protection like it matters, because it does.
Credit is telling you to stay honest. It has not followed equities to the highs, and that divergence matters. When spreads refuse to tighten in a risk-on tape, it usually means someone smarter is quietly hedging. I respect that signal.
So the trade is not about the Fed decision. It is about positioning for what the Fed cannot control. Stay nimble, fade the obvious, and respect the one variable that is still dictating everything else — energy.