Going into this Fed interest rate meeting, market expectations are that the Fed will hike by 25bps. Short-term interest rate markets are pricing in a 95% chance of a 25bps hike to 5.125%. However, the forward guidance is going to be the key focus for this meeting. So, does the Fed see rate cuts coming this year? Or will it affirm its hawkish stance to bring down US inflation?

Look at the seasonal reaction to the S&P500 to help gauge a market strategy for this FOMC meeting. Over the last 25 years, when the Fed hikes rates, the S&P500 has risen into the event, but then sold off in the days afterwards. So, if the Fed does take a more hawkish stance in its forward guidance watch out for sharp selling in the S&P500.

Major Trade Risks: The major trade risk here is that the Fed announces a hike, but then signal rate cuts to come. However, note that this response is already priced into the markets with two rate cuts expected by STIR markets.

HYCM clients can access the Seasonax product in order to analyse over 25,000 currency pairs, indices, commodities, as well as individual stocks. Please contact your account manager for a free trial. Certain products & services mentioned herein may or may not be available to all clients depending on which HYCM Capital Markets Group entity their trading account(s) adheres to.