To The Moon

Inflation explodes, storm descends! Which do you choose among the fed's three rate hike combinations?

It was thought that the problem of high inflation had taken a turn for the better, but the market backhanded. In May, CPI exceeded expectations again, increasing by 8.6% year-on-year, which is the biggest increase in 40 years.

Now those who once believed inflation had peaked no longer do; Those who believed the Fed might need to lower interest rates have now turned hawkish.

In a bloodbath on Monday, the S&P 500 down 3.88 percent, plunging into a technical bear market. Dow Jones (.DJI) down 2.79%; NASDAQ (.IXIC) donw more than 4 percent as large tech stocks fell. On Tuesday, the S&P 500 closed down 0.38 percent, entering a bear for two days; The Dow fell 0.5 percent and the Nasdaq edged up 0.18 percent.

Before the Fed's rate meeting, the market is once again gripped by concern over the speculation of a rate hike, which can now be basically summarized into three categories.

1."benevolent" doves

50 bps rate hike in June; 50 bps hike implied in July

Likelihood: low

Market sentiment lifts and stocks move higher

In early May, when the Fed announced a 50 basis point rate hike, it also hinted that it might raise interest rates by 50 basis points each in June, July and September. Prior to the May CPI data,, the consensus in the market was to raise interest rates by 50 basis points this time and another 50 basis points at the next meeting. At that time, the point of debate was what action to take at the September meeting.

With the market priced in, this possibility is also known as partial dovish, market sentiment will be improved, the stock market will also do well.

MohamedEl-Erian, dean of Queen's College at the University of Cambridge and chief economic adviser to Allianz, expects the Fed to raise interest rates by 50 basis points at its interest rate meeting this week.

2. "dove-hawk combination"

50bps hike in June; 75bps hike in July

Likelihood: high

The market may don't like it

After all, there is still the possibility of a voluntary slap in the face from the Fed before the May hint. Last month, Powell also made it clear at a press conference that he did not actively consider raising interest rates on a larger scale. In other words, the possibility of raising interest rates by 50 basis points in June is still relatively high.

However, with inflation higher than expected, there is no guarantee that the Fed will remain a "benevolent" doves, and the possibility of raising interest rates by 75 basis points in July will also be greatly improved.

3. "superhawk"

75 bps rate hike in June; 50 bps hike expected in July

Likelihood: the most likely

The market continues to fall

On June 13, the Wall Street Journal published a story, "The Fed may consider raising interest rates by 75 basis points this week", which contained the following sentence: A series of disturbing inflation reports in recent days is likely to cause the Fed Officials to consider an unexpected 75 basis point rate hike at this week's meeting.

A tossed stone raises a thousand ripples, it made the already panicked market sentiment "panic and panic", and S&P 500 Volatility Index (VIX) rose 22.59 percent in a single day.

The probability that the Fed is expected to raise interest rates by 75 basis points in June has soared to more than 95% from 3.9% a week ago, according to CME's Fedwatch tool.

Big Wall Street banks are also turning to hawks:

JPMorgan is expected to raise interest rates by 75 basis points this week, but does not rule out raising interest rates by 100 basis points;

Goldman Sachs expects to raise interest rates by 75 basis points this week, 50 basis points in September and 25 basis points in November and December;

Standard Chartered expects to raise interest rates by 50 basis points this week, but does not rule out a rate hike of 75 basis points or even 100 basis points;

Either way,it is quite hawkish and is likely to drive the stock market down further.

Which of these three combinations do you prefer?

How do you think $NASDAQ(.IXIC)$ will go forward?

Welcome to chat in the comment section!