Will the FED Surprise Markets With Another 25 bps Rate Hike?

The FED is expected to keep interest rates unchanged tomorrow, but we might get a surprise hike or some hawkish comments

Skerdian Meta•Tuesday, June 13, 2023•2 min read

Powell's comments will be more important than the FED rate cut itself

The FED has been raising interest rates many times in the last two years but expectations have been for them to stall in tomorrow’s meeting. Although the world of finance is filled with surprises, as we saw from the Bank of Canada and the Reserve Bank of Australia last week, which raised rates by 25 basis points when expectations were for a pause from them. So, the FED’s regarding interest rate hikes is not too certain, despite what economic calendars show.

There have been instances where the FED chose to raise rates despite the market estimating a low probability of such a move, often below 20%. These occurrences highlight the inherent unpredictability that accompanies the Federal Reserve’s decisions. They serve as reminders that market predictions do not necessarily dictate the Fed’s actions. As an independent entity, the central bank may choose to alter rates regardless of these odds. The continued hikes of the last two years have strongly highlighted that.

Looking ahead to tomorrow’s FOMC meeting, the current odds of the Federal Open Market Committee raising interest rates, according to the CME FedWatch Tool, are at 18.6%. However, given the Federal Reserve’s track record, it would be unwise to consider this probability as definitive. So, when it comes to trading the FED’s decision, those who bet against the Federal Reserve’s decisions can either achieve high rewards or face significant losses. Therefore, it is crucial for investors to consider the following factors:

Understanding the risks associated with betting against the Fed.
Taking personal risk tolerance into account.
Establishing clear investment goals.
Maintaining a balanced and diversified portfolio to mitigate potential shocks from unexpected Fed decisions.
Monitoring the market closely to identify attractive profit targets and implement stop losses.

Even if the FED decides to skip the hike at this meeting, we might see some strong bullish action in the USD and excessive weakness in Gold and crude Oil if they press on this hawkish rhetoric. So, it’s important to stay informed and make informed investment decisions while recognizing the unpredictable nature of the Federal Reserve’s actions. We will cover the meeting live, so you can follow us on our forex calendar page.

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ABOUT THE AUTHOR See More

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.