Fed Hike Looms Large as Oil Prices Surge

The Federal Reserve's interest rate decision on Wednesday has market participants on edge, with a 90% probability of a 25 basis point hike. This comes after strong non-farm payroll and core CPI reports, as well as persistently high inflation above the 2% target. Oil prices have also surged to over $100 a barrel due to tensions in the Middle East, adding to inflationary pressures.

Kevin Warsh's communication will be key in convincing markets that the Fed has inflation under control. A hawkish Fed could lead to higher borrowing costs, weakened loan demand, and increased credit risks, potentially hurting banks. However, a rate hike could also result in better lending margins and net interest income for banks.

There are three possible scenarios: the Fed hikes and is seen as getting ahead of inflation, the Fed hikes but remains hawkish, or the Fed holds. JPMorgan has been trending upwards since 2023, with support at around $330 and resistance at $400.