Will the Fed hike on Wednesday? My take on FOMC and what it means #FedRateWatch
August core CPI came in at 0.3 percent MoM, hotter than expected. Now the market is pricing almost 90 percent odds of a 25bps hike this Wednesday at 1800 GMT.
The real question for me is not if they hike, but if this is a one-off or the start of a new cycle. I anticipate a rate hike this Wednesday, but I do not think it is a one-off. With Brent crude back at 107 dollars after the Red Sea supply issues and the US 10Y yield hitting 5 percent for the first time since 2023, inflation still looks sticky. I think Powell will keep it meeting-by-meeting, which is hawkish in tone.
If the hike lands, this is how I see it playing out:
For BTC, I expect bearish in the short term. Higher real yields pull liquidity out of risk assets. A dip toward 105k to 107k would not surprise me before any bounce. Long term I remain bullish.
For tech stocks, also bearish short term. High growth names suffer when discount rates rise. I would expect Nasdaq to drop 2 to 3 percent on a hawkish surprise.
For gold, bearish short term as well. We already saw XAUUSD drop from 4386 to 4292 today, down 1.92 percent in 5 days. Gold does not yield anything, so it sells off when rates rise. If Powell is hawkish, 4240 to 4260 is possible. If he is dovish, that could be the bottom.
How do I plan to trade it? I plan to stay risk-off before FOMC with no high leverage. I will wait for Powell's press conference. If he signals a measured pace, I plan to look for long entries on BTC and gold on dips. If he signals more hikes ahead, I plan to stay on the sidelines.
What is your plan? Are you bullish or bearish after the decision?
