Did you feel the “Whoosh” on Wednesday? That was stocks tanking after new Federal Reserve Chair Kevin Warsh’s first policy meeting. Hawkish talk and hawkish forecasts caused the odds of an interest rate hike to spike!
Take a look at the MoneyShow Chart of the Day. It shows how expectations for either a 25 basis point rate hike – or equivalent cut – at the September Fed meeting have changed over the last three months. You can see that cut odds (the blue line) have sunk to only 2% while hike odds (the green line) have jumped to 65%!
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Rate Forecasts Shift from Cut to Hike
Source: Federal Reserve Bank of Atlanta
The chart is derived from options trading data compiled by the Federal Reserve Bank of Atlanta. So, it reflects real money positioning, rather than the opinions of market pundits.
Interestingly, hike odds have climbed despite the easing of Middle East tensions. The US-Iran deal theoretically “should” have provided some relief by lowering oil prices. That reduces inflation pressures, which decreases the pressure on the Fed to respond by hiking rates.
What about the consequences? In addition to pressuring stocks, worries about tighter monetary policy caused gold to swoon. The yellow metal plunged from around $4,400 an ounce just before the Fed’s post-meeting announcement to $4,240 yesterday afternoon. Bitcoin also came under pressure, losing about 5% through late Thursday.
Bottom line: Wall Street likes easy money. So do holders of zero-yielding assets. If rate futures and options markets price in a greater chance of one or more Fed hikes in 2026 and 2027, stocks, gold, and cryptocurrencies could see more selling pressure.
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