Suspense is mounting ahead of the Fed’s upcoming decision, with unusual options activity indicating a small group of investors are betting on a rate hike.

The Federal Reserve stands at a turbulent crossroads. With current Chair Kevin Warsh repeatedly hinting he will break the market convention of pre-announcing policy moves, this Wednesday’s interest rate decision has become one of the most unpredictable calls in recent years. Citadel Securities has bluntly predicted a "surprise rate hike" this week. The firm argues Warsh may use this move to signal the end of the "forward guidance" era, and restore the Federal Reserve’s independence by inflicting short-term pain on markets. On the other hand, the iShares 20-Year+ US Treasury Bond ETF (TLT) has recently shown strong bullish momentum. Data shows TLT’s put/call ratio has fallen to 0.63, a level not seen since May. On Tuesday, TLT’s call option volume hit 171,000 contracts, three times that of put options. Zed Francis, chief investment officer at Convexitas, revealed the logic behind this "curve twist": If Warsh opts for a decisive rate hike, markets will view it as the Fed’s ultimate resolve against inflation, causing long-term inflation expectations to collapse and driving long-dated yields lower (bond prices rise). This means a hawkish rate hike could actually be a bullish signal for long-dated US Treasuries and tech stocks like the Nasdaq 100 index.