Fed watch: Not two, but four potential outcomes
Like a kid on Christmas Eve, traders are hyper-anxious for tomorrow’s big festivities. Unlike Santa Claus, who doles out presents based on whether children have been naughty or nice, Dr. Yellen may deliver an exciting present or a big lump of coal depending on how you’re positioned heading into the event.
For months now, traders have been see-sawing between anticipating a rate hike in this week’s meeting and the December meeting (with a small minority expecting a move in the FOMC’s generally minor meeting in October).
However in our view, there are at least four potential outcomes from tomorrow’s meeting, not the simply hike/no hike dichotomy that many expect. Beyond just the decision about interest rates, the central bank’s comments and economic projections will also impact the market’s reaction:
As we analyze each of these four scenarios, it’s worth mentioning that traders are pricing in just a 25% chance of a rate hike tomorrow, and even those that expect interest rates to rise anticipate that it may be a “one and done” increase for the next several months, rather than the onset of an aggressive tightening cycle.
Click NEXT to go through the possible scenarios.