JPMorgan's Feroli on Fed Rate Expectations - FJElite
Feroli expects the Fed will leave rates on hold, with at least 2 hawkish dissents, including those from Hammack and Logan.
[1 %] FED 50BP HIKES - SPX falls 2% - 4%. Losses would be tempered if the Fed included messaging on this being an ad-hoc hike to get above traditional inflation measures but that this move should not be conflated with a series a hikes.
[20%] FED 25BP HIKES - SPX falls 1.5% - 2% with potentially double the decline experienced in NDX with RTY likely outperforming on the move lower given the market’s shift to anti-Momentum / anti-AI plays.
[50%] HAWKISH HOLD - SPX is up 25bp to down 50bp. Our base case as the Fed holds based on the strength of labor markets / growth but likely wanting to stay vigilant on inflation where recent energy market price action suggests another wave of disinflation is coming. A 10bps move in Rates produces a beta to DXY of about 0.5 - 0.6 and 1.5% - 2% for SPX. We could see a Hold lead to a weaker USD given long positioning.
[28%] DOVISH HOLD - SPX gains 50bp - 1%. The best outcome for stocks.
[1 %] FED CUT - SPX loses 1% to SPX gains 1.5%. The reason for the potential negative outcome is if the market perceives the Fed has having lost its independence, which would be reflected in higher yields, wider breakevens, higher vol, and weaker stocks.