FOMC Decision Night Preview: The Market has Entered the 'Powell Moment', Key Assets Have Completed Strategic Layout!
As the countdown to the Federal Reserve's May meeting begins, the federal funds futures market has shown a high degree of certainty in pricing, with the probability of maintaining the benchmark interest rate range unchanged currently locked at 97.8%, creating an almost unilateral expectation pattern.
From the perspective of the interest rate path pricing curve, traders are building a stepwise rate cut expectation: the probability of maintaining rates at the June meeting remains as high as 68.9%, while the expectation for a 25 basis point rate cut at the July meeting has risen to 57.1%, and the probability of continued easing at the September meeting remains above 50.9%. This structure of 'distant month pricing loosening while near month maintains composure' reflects the market's cautiously optimistic view on the economic soft landing path.
It is noteworthy that the current interest rate options market exhibits three main characteristics: the SOFR futures implied volatility surface shows a 'near-end flattening' feature, indicating that short-term policy risks have been fully digested; the overnight index swap (OIS) curve shows that the cumulative expected rate cuts are stable in the 50-75bp range; and key term spreads, such as the 2Y10Y, remain deeply inverted, indicating that long-end pricing is still suppressed by recession expectations.
Against this backdrop, the market's room for maneuver has significantly narrowed, and both bulls and bears have entered a strategic stalemate stage. However, historical experience suggests that this 'quiet period' often breeds unexpected volatility, much like the 'hawkish pause' scenario created by the Federal Reserve at its December 2023 meeting. Currently, mainstream crypto assets have shown signs of technical breakthroughs, and the validity of breaking key resistance levels will depend on the strength of policy signal confirmations.
On the operational front, we have completed multi-cycle hedging layouts: while maintaining defensive positions in cash-like assets, we have established long positions in crypto assets at key support levels and configured a steepening volatility surface strategy. This two-way calibration of policy signals and market expectations could create annual-level profit windows for trend traders.
All eyes are now focused on the last policy communication before the Jackson Hole meeting, and the answers will soon be revealed on the lips of the Fed Chair.
Markets change daily; don’t let your mindset tighten too much. If you always feel like you’re half a beat behind or are disturbed by market noise, feel free to chat.