Rate Hike Expected, But Pause Could Shock Markets More

The Federal Reserve is set to make its decision on interest rates this week, and while a hike may be widely expected, a pause could have a more significant impact on markets.

According to traders, there's an 87% chance of a 25-basis-point rate increase on Wednesday, following hotter August inflation and higher oil prices.

Goldman Sachs and JPMorgan have both shifted their stance, now predicting a hike. However, this has led to an unusual asymmetry in the market, as investors are more concerned about the potential consequences of a pause than a rate increase.

A rate hike would largely be seen as confirmation of the policy path markets already expect, but it could still pressure rate-sensitive assets. On the other hand, doing nothing has become the more disruptive trade for financial markets.