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Fed decision risk lingers as markets weigh September guidance

Futures imply roughly a 35% chance of a rate hike, leaving outcomes skewed toward FX and rate volatility if guidance disappoints.

Reported · Written up by our desk · Central Banks

BNY strategist Geoff Yu said markets are focused on a finely balanced Federal Reserve decision, with futures pricing about a 35% probability of a hike and a rate hold still viewed as the base case, according to FXStreet.

Yu added that the impact will likely depend less on whether the Fed holds today and more on how much Kevin Warsh signals for September, noting that markets already price a strong chance of at least one hike by then.

The analyst warned that a surprise hike could be cross-asset bearish, while even a hawkish hold may provide only limited relief if expectations are already embedded.

He also flagged ambiguity risk: if the Fed provides limited guidance, rates and FX volatility could rise as investors look ahead to upcoming CPI and PCE releases to judge whether energy-driven inflation is broadening.

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