Probability of Fed raising rates by 25 basis points reaches 92.5%, Wall Street simulates three market scenarios.

BlockBeats news, September 16 — The Federal Reserve will release its rate decision and summary of economic projections at 2 a.m. Beijing time on Thursday, with Fed Chair Kevin Warsh scheduled to hold a press conference half an hour later. Federal funds futures show a 92.5% probability of a 25-basis-point rate hike, with the target rate range expected to rise from 3.50% to 3.75% to 3.75% to 4.00%. If the hike materializes, it will be the first rate increase since Warsh took office in May this year.

U.S. core CPI rose 0.3% month-on-month in August, while Middle East tensions pushed oil prices back above $100 per barrel. Markets will focus on the vote breakdown and the new dot plot to judge whether the minority stance in July, when only 3 officials supported a hike, has shifted into a broader policy consensus, and whether there will be another rate hike within the year. Compared with this 25-basis-point adjustment, Warsh's remarks on the subsequent rate path may be more critical.

Wall Street institutions are mainly gaming out three scenarios: if the Fed hikes by 25 basis points and signals only one or two more hikes before ending, U.S. stocks may be able to digest the outcome, and the 10-year Treasury yield may edge lower; if the Fed stays put but signals a hike within the year, an initial stock market rebound may prove unsustainable, long-term Treasury yields may rise, the dollar may weaken and drive gold and real assets higher; if the dot plot or post-meeting remarks signal three or more consecutive hikes still to come, the 10-year Treasury yield may clearly break above 5%, U.S. stocks may fall more than 1%, and the dollar may strengthen.

Warsh simultaneously faces dual pressure from the White House to lower borrowing costs and from rising bond market yields. The market is watching whether he can make clear the Fed will address inflation while preventing investors from interpreting this action as the starting point of a new sustained rate-hike cycle.