The Fed decides tomorrow Oct 28 at 2:00 PM ET and it's expected to do nothing. But that nothing is the trade.
After shocking markets with a 25 bps hike in September to 3.75% 4.00%, the Fed is now priced for a skip. CME shows 88% odds of a hold this week, and 75% odds of a hike on Dec 9 . In short: October pause, December live.
Why a pause? The Fed is stuck between two bad trends:
Inflation hot: September CPI was +0.6%, core PCE is back to 3.0% and rising to 3.1%. Oil is up on Middle East tensions and AI capex is adding to demand.
Jobs cold: Payrolls added just 29,000 jobs in September, with 60K in revisions lower. That is near recessionary stall-speed.
Fed Chair Kevin Warsh, Jefferson and Williams have all signaled no urgency to hike back-to-back. Even hawks like Hammack and Kashkari are open to patience as risk management. KPMG calls it "pacing itself" don't over-tighten into a slowdown, but don't let 3% inflation stick.
So what moves markets Wednesday? Not the rate. The words.
1.Statement: If "additional firming may be appropriate" stays, December hike is locked. If it goes, stocks and crypto rally.
2. Warsh's presser (2:30 PM): Does he close the door on December or keep it open? His tone decides if we get a risk-on or risk-off day.
3. Dissents: 1-2 hawkish dissents for a hike would be a hawkish signal.
For Crypto:This explains the recent chop #BitcoinSlipsBelow$80KAgain and #EthereumDropsBelow$2300 were pricing in a hawkish hold.
- Hold + dovish = $BTC /$ETH bounce, tech earnings pop.
- Hold + hawkish = dollar up, risk down, another leg lower.
Don't trade the decision, trade the press conference.