Analysis of five scenarios for tonight's Federal Reserve decision! The most likely scene is this

Analysis of five scenarios for tonight's Federal Reserve decision! The most likely scene is this.

The Federal Reserve is scheduled to announce its interest rate decision at 2 a.m. Beijing time on Thursday, and Fed Chairman Warsh will host a press conference at 2:30 a.m. as usual. Faced with this Federal Reserve decision, which is currently hailed as the most unpredictable in the industry, JPMorgan Chase's U.S.

Market Intelligence Trading Desk predicted in its latest research report that the Federal Reserve will keep interest rates unchanged, and at the same time there may be at least two hawkish objections - including those of Hammack and Logan.

Xiaomo lists five scenarios of the Fed’s resolution and the potential trend of the S&P 500 index (arranged from high to low probability): ① The Federal Reserve keeps interest rates unchanged and takes a hawkish stance (50% probability) - the S&P 500 index today fluctuates between an increase of 0.25% and a decrease of 0.5%.

This is JPMorgan's current baseline forecast: the Fed keeps interest rates unchanged based on strong labor market/economic growth, but remains vigilant about inflation - recent energy price trends suggest that a new round of inflation may be coming.

②The Federal Reserve keeps interest rates unchanged while taking a dovish stance (28% probability) - the S&P 500 Index is expected to rise by 0.5%-1%. This is the most beneficial outcome for the stock market.

③The Federal Reserve raises interest rates by 25 basis points (20% probability) - the S&P 500 Index is expected to fall by 1.5%-2%, and the Nasdaq 100 Index may double its decline. Affected by the market's shift away from momentum stocks/AI concept stocks, the Russell 2000 Index may be relatively resilient in this downward trend.

④The Federal Reserve raises interest rates by 50 basis points (probability 1%) - the S&P 500 index fell 2%-4%. If the Fed also releases information indicating that this rate hike is only a temporary measure to deal with traditional inflation indicators and should not be interpreted as the beginning of a series of rate hikes, the decline may be limited.

⑤The Federal Reserve cuts interest rates (probability 1%) - the S&P 500 index fluctuates between an increase of 1% and a decrease of 1.5%.

The reason for the potential negative outcome for the stock market is that if the market views this as a sign that the Fed is losing its independence, it will lead to higher yields, higher breakeven inflation, higher volatility and weaker stocks. How are options markets priced? U.S.

stock options expiring on July 29 are expected to fluctuate approximately 0.8% based on the price on July 28. For reference, event pricing volatility on recent CPI data release dates is approximately 1.1%. J.P. Morgan's U.S.

market intelligence team stated that we believe the probability of the Federal Reserve raising interest rates this week is lower than the market's current pricing (the market's current pricing probability of raising interest rates is more than 30%) because: (i) U.S.

GDP growth is close to its trend level; (ii) although inflation remains high, there does not seem to be a risk of an explosive rise. In addition, if the Fed really wants to raise interest rates, it seems more appropriate to do so in June when the CPI is higher than the federal funds rate.

The JPMorgan team noted, “The FOMC is expected to keep interest rates unchanged at the end of this week’s meeting.

However, we expect this to be a controversial decision as some members of the committee are gradually losing patience with inflation that has continued to be above target, and we expect at least two hawkish objections (Hamack and Logan).” JPMorgan Chase said that the Federal Reserve will not release a summary or dot plot of economic forecasts this week, and

it is worth paying attention to whether the wording of the statement will continue the gradual adjustment pattern since this century, or whether it will be substantially rewritten at each meeting. If the former, we don't expect major revisions as there have been only minor changes to the employment and inflation narrative since the last meeting.

We think it is possible that the FOMC will indicate in its statement that it understands that action may be needed to demonstrate resolve. Regarding the press conference after the meeting, Xiaomo believed that the probability that Wash could bring new information was low.

In recent congressional testimony, Warsh described his views on current economic developments in very broad terms. Future disclosures of support for discount rate changes may further reflect the views of non-FOMC voting committees.

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