The Federal Reserve Decision: A Critical Event for Global Markets
As the world eagerly awaits the Federal Reserve’s decision on interest rates, uncertainty looms large. Will it be a 25 or a 50-bps cut? This rare uncertainty, coupled with other factors such as the dot plot and Chair Powell’s conference, makes this a pivotal moment for Gold, stocks, and the US Dollar.
Factors at Play
- Fed Chair Jerome Powell’s clear indication of a rate cut at Jackson Hole
- Bond markets pricing a 63% chance of a 50-bps cut and a 37% chance of a 25-bps move
- The Fed’s motivation: confidence in conquering inflation or fear of a looming recession
Possible Scenarios
- Big cut, confident message: Stocks and Gold bullish, US Dollar bearish. Powell’s assurance of a soft landing due to falling inflation would be ideal. High probability.
- Small cut, confident message: Whipsaw effect initially, with stocks and Gold falling, then recovering as confidence in the economy grows. Medium-high probability.
- Big cut, concerned message: Initial rise in stocks and Gold, followed by a US Dollar bounce back if concerns about a recession surface. Medium probability.
- Small cut, concerned message: Equities down, US Dollar up, with Gold eventually recovering on hopes of lower rates. Low probability.
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