To The Moon

1. Basic Meeting Info

1. Schedule: FOMC rate decision release at 2:00 AM Beijing Time on July 30 (2:00 PM ET, July 29); Powell’s press conference kicks off at 2:30 AM Beijing Time.

2. Current policy rate: 3.50%–3.75%, held steady for four consecutive meetings.

3. Key note: This is a non-SEP meeting. No updated dot plot or economic projections will be published. The full 2026 rate path will solely hinge on policy statement wording and Powell’s remarks; the next dot plot update comes in September.

4. CME FedWatch pricing (as of July 26):

   • Probability of unchanged rates this Wednesday: 87% (market baseline case)

   • Probability of a 25bp hike to 3.75%–4.00%: 13%

   • Near-zero odds of a rate cut; markets have fully priced out July easing expectations.

     

2. Three Scenarios & Corresponding Full-Year Rate Paths

Scenario 1: Baseline Case (87% odds) – Rates on hold, hawkish rhetoric

Policy action this week

Fed maintains the 3.50%–3.75% target range, marking the fifth straight pause.

Core signals from statement & press conference (driving H2 policy trajectory)

• Hawkish inflation language retained: Reiterate inflation remains well above the 2% target; softening labor market references removed.

• Keep a 25bp rate hike on the table for either September or December, ruling out a formal pause for the rest of 2026.

• Push back against any dovish forward guidance; repeat data-dependent, meeting-by-meeting policy approach with no commitment to sustained high rates, yet reject easing pivot.

• Balance sheet runoff (QT) pace unchanged; no signal of balance sheet expansion.

Market-priced rate trajectory under this scenario

1. September 16 FOMC: 55% odds of a 25bp hike, 36% odds of no change – this meeting becomes the critical policy inflection point of 2026.

2. December 9 FOMC: 58% cumulative probability of at least one additional hike in 2026; futures price a total of 36bp tightening for the full year.

3. End-2026 implied policy rate midpoint: 3.86% (consistent with a 3.75%–4.00% range).

4. Rate cut timeline fully pushed to Q1 2027; zero easing priced for all of 2026.

5. Consensus forecasts from Wall Street banks (JPMorgan, BofA, UOB): Policy rates locked at 3.50%–3.75% through 2026; first 25bp cut arrives in Q1 2027.

Scenario 2: Hawkish Tail Risk (13% odds) – 25bp hike immediately to 3.75%–4.00%

Trigger conditions: Sharp upside surprises in June-July core PCE, nonfarm payroll wage growth, and crude oil prices.

Full-year rate path

1. Tightening completed at the July meeting.

2. Likely pause at September; secondary 25bp hike remains a downside risk for December.

3. Higher-for-longer rates through H1 2027; rate cuts delayed until Q2 2027.

Scenario 3: Minor Dovish Outcome (<3% odds) – Dovish signals, no additional hikes in 2026

Trigger conditions: Sustained steep cooling in core inflation, sharp labor market deterioration, or abrupt consumer spending contraction.

Full-year rate path

1. Policy rates flat at 3.50%–3.75% for the entire year.

2. September dot plot to mark down rate projections, pricing a potential 25bp cut in December or early 2027.

3. Official Baseline Path from June SEP Dot Plot (Key Policy Anchor)

The latest Summary of Economic Projections released in June:

1. Out of 18 voting and non-voting committee members submitting forecasts, 9 officials expect at least one 25bp rate hike in 2026 (split hawkish majority).

2. No single committee member projects rate cuts in 2026.

3. Median official forecast: End-2026 policy rate at 3.75% (one additional hike); end-2027 rate at 3.50% (one 25bp cut).

4. Three Critical Data Prints Shaping Post-Wednesday Rate Path

1. Core PCE Inflation (Fed’s preferred gauge): Persistent prints above 3.3% materially lift hike odds; a sustained drop below 3% quickly eases tightening expectations.

2. Nonfarm payroll wage growth + unemployment rate: Hourly earnings growth above 4.3% and unemployment below 4.1% lock in restrictive policy bias.

3. Energy & tariff-driven inflation: Sustained crude oil prices above $85/barrel lift headline inflation, forcing preemptive tightening risks.

5. Trading Takeaways for Wednesday’s FOMC

1. The headline rate decision carries little volatility risk (hold is widely expected). Market swings will be driven entirely by Powell’s commentary regarding September hike odds.

2. If Powell explicitly keeps September tightening on the table: U.S. dollar strengthens, Treasury yields rise, growth stocks face downward pressure.

3. If Powell softens hawkish language and highlights cooling inflation: U.S. dollar weakens, Treasury yields decline, U.S. tech equities and precious metals rally.

4. Core macro narrative for 2026: No rate cuts; markets will trade the odds of one final hike, with the easing cycle not launching until 2027.

   

Bonus: Hawkish / Dovish Signal Keyword Cheat Sheet

Hawkish Signals (Bearish Stocks, Bullish USD/Yields)

• Inflation risks remain skewed to the upside

• Additional policy firming may still be appropriate

• Restrictive policy to be maintained for an extended period

• Premature easing risks inflation reacceleration

Dovish Signals (Bullish Stocks, Bearish USD/Yields)

• Disinflationary progress continues

• Balance of risks between inflation and employment

• No need for further tightening

• Policy may adjust if inflation cools further