Divided Market Awaits Unprecedented Fed Rate Decision
Interest rate futures show a 30% chance of a hike and 70% chance of a cut, a rare split ahead of a Fed meeting. Fed Chair Warsh has removed forward guidance, adding to uncertainty.
Tomorrow’s Federal Reserve decision is shaping up to be one of the most uncertain in recent history. Interest rate futures currently imply a roughly 30% probability of a rate hike and a 70% probability of a cut — a sharp break from the near-99% consensus that preceded almost every meeting since March 2020.
The uncertainty is compounded by Fed Chair Warsh’s effective elimination of forward guidance. Markets have been left with little direction ahead of the announcement, amplifying the already elevated stakes.
Despite the implied hike probability, the expectation remains that the central bank will hold rates steady. Several factors support a continued pause: President Trump previously indicated that willingness to cut rates was a precondition for his next Fed Chair; the Iran War energy shock is likely to be seen as a temporary inflationary event rather than a structural one; the labor market is weak; and Americans are already struggling with high interest rates.
Source: The Kobeissi Letter