Fed watch: Not two, but four potential outcomes

September 16, 2015 09:12 AM
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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. 

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About the Author

Senior Technical Analyst for FaradayResearch. Matt has actively traded various financial instruments including stocks, options, and forex since 2005. Each day, he creates research reports focusing on technical analysis of the forex, equity, and commodity markets. In his research, he utilizes candlestick patterns, classic technical indicators, and Fibonacci analysis to predict market moves. Weller is a Chartered Market Technician (CMT) and a member of the Market Technicians Association.