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Federal Reserve officials are debating what to do next.

Balancing the goals of restoring price stability and preventing further banking sector disruption poses a significant challenge for the FOMC. If they back off on rate hikes, it will placate markets but could fuel inflation down the line.

Do they have enough credibility and resolve to take a pause now and resume them at the next meeting in early May if markets calm down?

Venturing into the "what the Fed should do" versus "what it will do" debate, Powell is determined to counter inflation at any cost This makes me wonder if the FOMC is focusing too much on past issues while financial stability is at risk right now. We're not saying Powell isn't paying attention, though. He's just trying to show that they have other tools besides rates to keep any banking problems under control.

It's a tough call and it's difficult to have any conviction from any angle but the safest path forward is to hike by 25 bps and offer little guidance. The problem is that Wednesday's FOMC also comes with a dot plot and the Fed has elevated its importance into something of a promise-to-deliver. So Powell will have the tough task of downplaying the dots.

So what's priced in? Right now the market is pricing in an 83% chance of 25 bps. I think some of that is because Timiraos' piece yesterday didn't offer any clue of a leak and if Powell wanted to do 50 bps or no hike at all, a leak might be necessary. The shift to 25 bps also reflects the calm in Europe despite the 50 bps hike from Lagarde and the relative stability in markets so far this week.

The problem is that turmoil could reappear immediately after the FOMC decision and that would render everything irrelevant and further damage the Fed's credibility. That's why I think there's a higher risk of no change in rates than markets are currently indicating. Of course, that all depends on the answer to this question: Are rates currently high enough to tame inflation?

Beyond Wednesday's meeting, there are a total of 36 bps priced into the June meeting, or 4.96% -- so call it 1.5 hikes in the next two meetings. Afterwards, the path turns lower with the market back at 4.38% at year end.