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High probability: No rate hike tonight, but a rate hike signal will be released #美联储即将公布利率决议 ┈➤ High probability of no rate hike tonight ╰✦ Market expectation is a high probability of keeping rates unchanged CME interest rate futures products show that the market's expectation for a July rate hike has a 68.5% probability of rates remaining unchanged. See Figure 1. The recent rise in rate hike expectations is due to tense US-Iran relations and rising oil prices. Polymarket's expectation for no rate hike in July has dropped from 96% to 75% in the past two days, but it still remains around 75%. See Figure 2. These two products, the former being interest rate futures and the latter a prediction market, are both "voted" on by TradeFi traders using real money. Especially CME interest rate futures, since mid-2023, the Fed's dot plot showed further hikes in the second half of the year, but CME interest rate futures indicated no more hikes, and indeed there were no hikes in the second half. ╰✦ Layoff trend Recently, companies like Visa, Uber, ServiceNow, Disney, and Patreon have clearly announced upcoming layoffs, for example, Visa announced 2,600 layoffs, Uber announced 10% layoffs... (Information confirmed by Grok+GPT) If large companies are like this, what about small companies? The current corporate layoff trend is influenced by AI replacing human labor combined with economic trends. Although rate cuts cannot solve the AI replacement issue, rate hikes still need to be carefully considered. Therefore, the market's expectation for a rate hike in September is relatively high, including CME interest rate futures and Polymarket predictions. ┈➤ Releasing rate hike expectations The Fed will most likely release rate hike expectations. Brother Feng has analyzed this issue more than once: rate hikes cannot solve inflation caused by rising oil prices. However, inflation caused by rising oil prices triggers expectations and demand for wage increases. Once wages rise, it further pushes up corporate costs, which then causes prices of goods and services to rise. The role of rate hike expectations is to suppress wage increase expectations in this "wage-inflation" spiral, thereby curbing the "wage-inflation" spiral. ┈➤ Final notes on layoff trends: on one hand, they reduce the sufficiency for Fed rate hikes. On the other hand, with layoffs ongoing, Americans' demand and desire for wage increases will also decline, reducing the "wage-inflation" spiral trend, which in turn reduces the necessity for Fed rate hikes. This is quite an interesting logic. Combined with market expectations, there is a high probability of no rate hike tonight. Since the FOMC meetings occur roughly every one and a half months, there is no meeting in August, making it a monetary policy gap month. The latter half of the month may start to price in a September rate hike. The first half of the month may not be very quiet; crypto mainly watches the Senate full vote on that clear bill. As for September, if inflation issues are severe in September or Q4, the Fed may hike rates once to better exert this suppressive effect. But a single rate hike is not a continuous rate hike cycle, so market panic and liquidity expectations may be relatively limited. Of course, the key concern is if the September dot plot releases a more hawkish signal.