JPMorgan's Fed Day Scenario Analysis: Market Could Have Best Day In 14 Years... Or Crash 8%

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by Tyler Durden
Tuesday, Nov 01, 2022 - 01:09 AM

Ahead of the Wednesday FOMC 2pm decision, a fourth successive 75bps rate hike has long been pretty much nailed down but the subsequent path of hikes is now up for grabs and will be the focus from this week’s meeting.

As DB's Jim Reid wrote earlier today, "it feels inconceivable to us, given how spectacularly forward guidance has broken down across the global markets over the last 12 months, that Powell will try to guide too aggressively for December, especially with two payrolls (one this week) and two CPIs to come before they meet again." In light of this, DB's economists currently believe that 75bps is still likely in December, but that January could mark a downshift whilst still seeing upside risks to their terminal rate expectation of 5% given the recent inflation data and evidence that r-star has risen. Even WSJ Fed mouthpiece, Nick Timiraos, tweeted at the weekend “Consumers have a big cushion of savings. Corporations have lowered their debt-service costs. For the Fed, a more resilient private sector means that when it comes to rate rises, the peak or “terminal” policy rate may be higher than expected.” To be fair in his WSJ article that went viral 10 days ago he did mention that 2023 Fed forecasts could be upgraded. However the market mostly focused on the near-term downshift possibilities.

Over the weekend, Goldman came out with a slightly different scenario: the bank's economics team - which also expects a 75bps hike this week - had updated its terminal rate estimate to 4.75-5% in March, and sees hikes set for: 75bps in Nov, 50bps in Dec, 25bps in Feb, 25bps in March (with March here being the new add).