Ever since June’s CPI index was released on July 13, where
headline, year-over-year inflation reached a new high for the current cycle of
9.1%, the question has been, will the Fed raise rates by 0.75% or a full 1%?
Currently (~1pm est.), the CME
Group’s FedWatch Tool is
indicating a 75.1% probability of a 0.75% increase and a 24.9% chance of 1%.
Tomorrow, the answer will be known when the Fed concludes this month’s meeting.
With the Fed so far behind the inflation curve, a full 1% increase might
actually be better received by the market. It would accelerate the Fed’s well
telegraphed timeline and potentially shorten the duration of pain and
In the chart above the 30 trading days before
and after the last 114 Fed meetings (back to March 2008) are graphed. There are
four lines, “All,” “Up,” “Down,” and “Rate Hike Days.” Up means the S&P 500
finished announcement day with a gain, down it finished with a loss or
unchanged. In 114 Fed meetings, there have been just 12 rate increases. Three occurred
this year. These 12 increases are represented by Rate Hike Days. Of the 12 hike
days, S&P 500 was down 7 times and up 5 times with an average gain of 0.46%
on all 12. This year’s rate hikes were well received by S&P 500 with gains
over 2% in March and May and a near 1.5% gain in June. On the day after the
last 12 rate hike announcements, S&P 500 has declined 0.90% on average.
Image and article originally from jeffhirsch.tumblr.com. Read the original article here.