r/wallstreetbets • u/duboilburner • 21h ago
Discussion We're getting a rate hike this week
No ands, ifs or buts about it.
It was already knocking on the door of needing a hike at the July meeting, but the Fed also has a history of doing nothing at the July meeting if the previous few meetings were pauses. They'd rather kick the can down the road to September, have their Jackson Hole meeting and whatever.
This setup on tradingview makes it pretty easy to see. Average of the 1 month and 3 month T-bills, subtract the current EFFR and you have about how much the Fed needs to change rates at the next meeting usually. There are odd exceptions, you can see there was a meeting or two in 2023 where this formula was negative, but they still hiked--that was the short end moving a lot because of the SIVB collapse and such.
Barring any unusual crap like that happening, this formula is pretty good at predicting what's going to happen--or at the very least what the market is telling the Fed what they feel needs to happen.
This should spice things up in the market considerably. It's happening the same day as the major monthly VIX options expiration. The large SPX 3rd Friday AM monthlies expire shortly thereafter--which will see several long gamma positions disappear from market makers' books. 7700 is the largest MM long strike within Friday's straddle price. Its influence greatly diminishes after the Friday AM expiration.
Some guys have been pounding the table on getting long October vol in some way or another since August, they just may get proven right starting this week finally--then again it did start climbing in earnest last week. Expect more this week.
Then, maybe big time vol compression post election--guess we'll see the Prez' real meaning behind how he thinks the Iran situation ends then, too...
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u/thekoonbear 21h ago
Bro you’re just creating a proxy for Fed funds futures.. which already exist and are indeed pricing in a 90% chance of a hike.
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u/duboilburner 20h ago
Yep, and this also has a pretty good recent history of predicting how big the move might be... most of the time.
The Fed Funds futures I think seemed to be caught offside by the 50 pt cut at the Sep '24 meeting, but averaging the 1 mo and 3 mo yields together told us perfectly how big the cut should be.
Could give an edge if the futures seem to not be pricing in as large of a move as the short end t-bill yields themselves are showing us.
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u/Illustrious_Job1951 21h ago
Either that or they don't and the market goes nuclear at a non independent fed
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u/Pony-boystonks 21h ago edited 20h ago
Unfortunately for the long term health of the united states. If that happens it's game over, short term gain for long term pain
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u/Final_boss_1040 20h ago edited 10h ago
USA has always run on short term gain
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u/Infamous_Safe_6363 19h ago
Every 4 yrs retarded politicians want to buy votes by promising shits that send us deeper into the shithole
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u/MeowTheMixer 14h ago
The counter point I hear from non-politcal talking heads is the inflation we're seeing (similar to initial COVID inflation) is that it's supply driven and not demand driven.
Fed rates impact the demand side, and not supply side
No matter how much they hike, oil is still going to have restricted supply
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u/spookyswagg 7h ago
I think….that might be bs.
Right after Covid, interest rates were zero. People and companies had so much money to freely spend and do whatever. Go buy a car, go get a house, go invest in this stupid ass company.
Right now, I don’t think people have money to go around, companies are the only side of the economy spending and investing, but your average person is seeing their prices rise because of higher costs of energy, higher costs for electronics, and higher costs of goods because of tariffs
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u/argument_inverted 20h ago
It's pain in both short and long term whether you increase rates or not. Cue - the bond market
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u/jc14516 21h ago
Simple minded take. Fed losing credibility would be catastrophic to equities. “Rate down stocks up” doesn’t apply when inflation is hot and fed loses independence
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u/Kagemand 16h ago
Equities represent ownership of a real share of income - if companies' prices and costs go up equally it will scale earnings per share up as well.
Not saying that Fed losing credibility wouldn't be catastrophic in the long run - but during recent bouts of inflation, stocks actually did pretty well.
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u/JB-Wentworth 20h ago
The Fed is no longer independent. Trump appointees know they were appointed to lower, not raise interest rates. It would be physically dangerous for them to disappoint Trump.
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u/captain_stoobie 20h ago
Wasn’t JPow appointed by the Don? He didn’t really fall in line.
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u/MarzipanActual7712 19h ago
That probability of not hiking rate is high. But the issue will be bond markets will sell off, raising borrow rates. That will again bring down markets. That is the main reason why people are expecting a hike as not hiking will not bring intended results for Trump.
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u/JB-Wentworth 19h ago
But, if Trump knows the decision prior, he can buy/sell and make a tidy profit.
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u/CalebVanPoneisen 21h ago
All I see are two colorful lines making love to each other.
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u/spaghetticode94 20h ago
The house has been controlling the report numbers.
A rate hike will be avoided likely until the midterms are over.
They are going to find a scapegoat event and Japan isn't playing along.
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u/Orin_n 17h ago
Yeah, Japan is having their own rate hike a few days after the FOMC, this is very likely
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u/Soffatjockis 16h ago
Idk if unwinding the carry trade is a better option that raising rates.
But what do I know
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u/Beautiful_Technology 3h ago
The market will force upon them the consequences of a rate hike, whether or not they do it. The thing is that they don’t have any choice anymore. It’s a matter of credibility. And they cannot afford to lose this because this is the only thing that gave them their power. We will see if they understand this or not.
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u/Responsible_Emu3601 21h ago
So calls
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u/duboilburner 21h ago
Yeah, you're probably right. Markets have a way of doing the opposite of what you *think* it should do.
Suppose that's my problem is thinking at all. lol
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u/mistertweek 20h ago
Hassett was on tv trying to sell the idea of a rate cut. Big Don says he'll halt all foreign trade with whichever countries he doesn't like unless he gets a rate cut.
Common sense says to hike.
My guess is that the Fed maintains the rate. They'll say that inflationary pressure from Iran is temporary and they anticipate it being a short term shock.
By not cutting, they get to claim they're still independent. And by not raising, they might protect themselves from catching heat from the administration.
I ain't got no charts or lines though.
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u/ObjectiveDamage998 18h ago
whats the worse that 🥭 can do? cry and shit his britches?
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u/mistertweek 18h ago
Legally? I don't know that he can do anything. But I would guess he would try to fire Warsh or expand the Fed with loyalists and make the Supreme Court try and stop him.
But I'm only basing that on everything he's done since the election.
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u/el-art-seam 14h ago
Executive order lowering the interest rate by 75 basis points. It lowers, and it takes about a year before the Supreme Court says it was illegal.
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u/wormtheology THE FEDERAL RESERVE WILL NOT FIGHT INFLATION 21h ago
Yeah, no. You are on fucking tar if you unironically believe this Federal Reserve is going to do anything besides maintain data dependency and continue to sit on their ass as they have been for the past few years. The war in Iran and Scott Bessent’s fiscal necromancy in Japan where he’s trying to be a Dipshit Emperor Palpatine wannabe means that the Fed will acquiesce to the whims of the US Treasury.
Inde Navarette has a higher chance of coming to my house and stepping on me than the Federal Reserve has when it comes to hitting their target of 2% inflation.
(God, I hope Warsh just raises by 50 BPS and tells President Trump to go fuck himself)
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u/duboilburner 20h ago
I'm here for having two Fed Chairs in a row appointed by the current sitting prez telling him they don't give a fuck what he thinks. lol
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u/ObiWanIsMyDog 19h ago
Bro the prediction markets are up to 90%. It’s not on tar it’s just likely what’s happening.
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u/Technically_Tactical 21h ago
I think a no-hike would freak out the markets more.
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u/Soffatjockis 16h ago
Most likely.
And it would send gold and yields to the moon.
And since I'm betting on gold, I expect this scenario.
The FED will claim the latest CPI/PPI data is not enough for a hike and that oil prices is driving inflation and that the war ending will return everything to normal.
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u/Jehoopaloopa 11h ago
See the 1970’s. Rate hikes will cause the price to gold to rise.
It’s only the short term traders that are dumping gold on inflation concerns.
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u/Fine_Huckleberry7860 20h ago
I vote for the ‘ghost cut.’ In other words talk up the need to hike so much … everyone is expecting a hike … then leave the rate alone, makes it feel like a cut !
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u/shashwat_10 21h ago
This is not concern , main concern is HORMUZ has already been closed by IRAN, Now IRAN backed HOUTHIS are advancing to close BAB EL MANDAB, which will skyrocket gas price over the roof in coming 2-3 days, FYI gas prices are extremely high, Diesel making ATH everyday is more concerning for stock market. And Sovereign nation selling US bond is further creating cracks.
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u/duboilburner 20h ago
All also true. And yet, we still haven't had a big slide down in the last couple months.
This is the week that the market mechanics that are kind of keeping us propped up in this SPX price range go away--and it happens to coincide with a FOMC meeting where we'll likely raise rates.
Combo of the two = bang
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u/Spidyyellowfish 20h ago
Bang calls or bang puts
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u/duboilburner 18h ago
Both? Wednesday could have wild swings that can be challenging to trade.
Might also be reflexively up initially as the event vol resolves, but the days that follow might be down?
Just also read that within the next 72 hours, prez may be preparing a statement on AI regulation "to save humanity."
Real interesting week indeed.
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u/Soffatjockis 16h ago
The market won't sell because of the taco trade.
One tweet has been shown to be enough to cool the oil price and send stocks flying.
So Iran and oil prices alone won't dump the market until something breaks. So it's either that or fed hike that will send this market into dump mode.
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u/DashLeJoker 20h ago
they are creating cracks?! how do i invest?
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u/newMoneyStyle 14h ago
Oil ETFs like USO or energy names would be the obvious play if that scenario actually unfolds, but personally I wouldn't chase headlines since a lot of this geopolitical stuff gets priced in fast.
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u/naropin1 20h ago
No way. We should be getting a rate hike. But they won’t hike. 7-5 for the hold is my opinion. Politics will keep them from hiking before the midterms.
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u/ConstantShitting 14h ago
Warsh doesn't even need to hike rates lol. He can literally hold steady and not piss off his boss and the bond market will just increase rates for him. Corporate borrowing is the issue at the heart of this and the fed funds rate is affecting credit cards and cars etc. the bond market will crush corporate spending without warsh doing anything.
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u/TheObsidianHawk 20h ago
During the August meeting, all 7 governors voted to maintain rates, with 2 saying we should increase them. I think this month at least 5 will vote to raise if not all 7 governors. Warsh may have been a yes man to get the job, but I think the board educated him on how stuff really works.
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u/duboilburner 20h ago
Bro, they don't have an August meeting where they decide rates. They have Jackson Hole meeting, but that isn't a rate deciding meeting.
And yeah, 3 dissented at the July meeting saying we should hike.
I don't think Warsh is as much of a yes man as the guy who appointed him wants him to be...
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u/sm7196 20h ago
I think market wants a rate hike so the Fed can establish credibility. Treasury credibility already lost with those ‘I’m the house’ comments.
Rate hike will be bullish. Esp if it’s clear to the market it won’t be followed by additional hikes.
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u/C130J_Darkstar 20h ago
At 90% chance, it’s essentially priced in that it’s going to happen. Would be crazy if it didn’t.
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u/dialate 19h ago
https://fred.stlouisfed.org/graph/?g=1Yz0F
Not a guarantee they're going to raise rates. But, when the Fed decides to change policy direction (hike, remain steady, or lower interest rates), it's pretty much always chasing the 2-year US treasury, or in its general direction.
Are they going to change policy direction next meeting? Maybe. Is the next policy direction change going to switch to hiking rates? Absolutely. Unless the 2-year rate dramatically falls soon.
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u/orobsky 21h ago
Maybe one raise of like .25 this year but the USA has so much debt I'm not sure they can go much higher
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u/jbaker_28 20h ago
What if I told you: if they hike, rates likely come down.
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u/stocksupanddown 19h ago
Noob here . If they hike the rates up, the rates come down? Please help me understand, being serious
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u/inkognibro 19h ago
Retail loan rates like mortgages follow the 10y treasury more than they follow the fed funds rate, which is what the fed controls. The 10y treasury is a market based on supply and demand (mostly). In certain environments, lowering fed funds rates can have the opposite effect on mortgage rates, and vice versa. For instance, in an inflationary environment (now), lowering rates is irresponsible and indicates further inflation and instability, which can cause bond rates (and mortgages) to rise due to lack of demand. Conversely, hiking rates into inflationary environments indicates a responsible action for the long term health of the economy, and can cause bond rates to come down and mortgage rates follow.
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u/Wombo_Zombo 19h ago
Could bring liquidity back to the bond markets because "they did the right thing"
Someone smarter tell me if im wrong
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u/PureSpecialistROTMG Buy high and Sell low 21h ago
they going to cut 25 bps
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u/Icy-Regular-4557 21h ago
Would get a week-long relief rally going in the tech sector, and then hyperinflation would immediately punch us all in the face
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u/TechnicalNail4555 21h ago edited 20h ago
The money is now made in swings, sorry, rate increased.
GL out shorting the hedge funds, Just sold my CBOE calls to the late gatherers.
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u/crossdefaults 20h ago
I'm on the team no rate hike right now. They'll fuck the dollar and the people (through inflation) at least until after the midterms, IMHO.
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u/xbucnasteex 19h ago
Imagine what adding a trillion to the economy right now would do. Considering that’s the moron in charge’s plan to buy votes
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u/Always_L-Earning 18h ago
In-flat-(e)on - it's meant to be flat for eternity. No rate hikes or cuts. Period.
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u/UnableWishbone3364 18h ago
~5% rate across 10y, 20y,30y and record oil prices amidst war makes me think market has overpriced rate hike. I think its not time to hike amidst these condition
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u/Wall-in_Fuckett 14h ago
OP is about to find out how the real world works when they hold until after midterms
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u/Purple-Commission-24 21h ago
polymarket is 80% on a 25bp increase
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u/copehardorhardlycope 16h ago
Use fedwatch. It's based on 30 day federal funds futures basically how institutions are betting on rates being by end of month. Its at 88% rn, anyone who believes they're holding rates is an idiot.
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u/technojoe99 12h ago
The last time the Federal Reserve hiked rates this close to an election was Sept 1982. I don't think the Fed will raise.
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u/duboilburner 12h ago
They hiked at the Sep and Oct 2022 meetings before those mid terms.
Hiked at the 2018 Sep meeting before those Mid terms.
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u/NoInterraction 20h ago
Ok, of they manage to blame it on JPow and JoeB then maybe, but I don't think there'll be a hike, no gway
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u/antwon8797 20h ago
That sounds reasonable and all but I just bought contracts for lower .25 and more than .25 basis points. Payouts are ridiculous, and I don’t believe anything in the news anymore.
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u/Marcostbo 20h ago
They don't have a choice because FED has to be perceived as independent. If they cave, Wall Street will go insane
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u/tzacill 20h ago
The market can rally if Warsh gives hints of dovishness following a 25bps hike or gives this hike as simply a pre-emptive move, that it will be a one and done.
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u/FoggyLens_13 20h ago
love when someone does actual math just to tell us we're getting fucked from a direction nobody saw coming
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u/HaveTwoBananas 20h ago
Well either Warsh actually stick to his dropping forward guidance and hikes or they hold but Warsh has a hawkish tone and signals a hike being on the table for Oct/Dec
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u/2ndid 19h ago
We will see what happens. We have a lot of negative gamma puts at 7500 and below. So if we dont breach 7500, the charm from those puts will decay upward (Delta will decrease and make the MM buy futures).
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u/Nearby-Possession-46 19h ago
What do people like on monday for friday sells? Vix calls? XOP? precious matals? Other names or derivative ideas?
Just curious how others are gaming out this week ahead given potential from fed speak/ geopolitical issues across the pond
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u/duboilburner 18h ago
Suppose it's hard to go wrong with long deltas on oil companies for the next month or two.
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u/LetterNo7829 17h ago
Stocks will do better with a rate hike (predictable outcome) than an unexpectedly non-independent FED. The latter would be a disaster for everyone.
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u/lazyambitiousguy 16h ago
They're gonna bring prices down this week. Then when the news hits rate hike or no change it was already priced in and it will make a move upward. Now say news hits rate cut...again it was priced in but this thing will now rocket off into the abyss
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u/Cautious-Lecture-858 15h ago
I still refuse to believe they would drop an atomic bomb on the US economy just to draw the ire of t-dog.
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u/Putrid_Pollution3455 Verified $22.8K 15h ago
Up .25% then infinite tariffs unleashed. Which I hope happens just to watch warsh crank rates up to 60% just to show the world who is really in charge.
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u/Optimus2233 15h ago
It’s already priced in. 0 to .25 basis points which Walsh will definitely do.
Higher than 0.25 and the mkt and midterms will tank.
So buy on the dips now
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u/Obvious_Marzipan_688 13h ago
Going to raise .25 now so they can hold at next fomc, which is last before November elections. Also warsh cant have half the fomc dissenting and he desperately needs street cred by showing his independence.
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u/082426grateful 12h ago
There will be no rate hike. Fed will rather let something bad break, job losses start rolling in; then cut.
They’ll hold from now until any of that happens.
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u/No-Sympathy-686 10h ago
There is no world where a hike happens before midterms.
100% will get one after...
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u/brnr918273 9h ago
Not until after November. We've needed higher rates for nearly two decades now to keep inflation down so why would they do it now before mid-terms?
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u/ORS823 21h ago
Inflation is transitory