Markets price a 35% chance of a Fed rate hike, with a hold expected but guidance on September key for dollar support.
The Federal Reserve is poised to hold rates steady today, though futures indicate a 35% probability of a hike. The decision is finely balanced, with market reaction hinging on signals about future moves, particularly for September.
Expectations already embed a strong chance of at least one hike by September, limiting potential upside for yields or the dollar even if the Fed adopts a hawkish tone. A surprise hike, however, could trigger a bearish cross-asset response as investors reassess the policy path.
Ambiguity in guidance may heighten volatility, as traders await upcoming CPI and PCE data to gauge whether inflation pressures are broadening beyond energy. A clear signal on September could mitigate uncertainty, but a lack of direction risks prolonging market instability.