Bill,

What do you think will happen after the FOMC reports? Here is what I think so far.

Since the markets have been doing very little, this indecision implies the possibility of both a rally and a decline as a result of the FOMC. The most like cases are a 25 bp rate hike and a 50 bp rate hike. Fed funds futures seem to indicate an approx. 90% chance of a 25 bp rate hike and about 10% for a 50 bp rate hike. Whatever the June hike decision may be, the markets will also be examining the language and guidance of the Fed statement extremely carefully. Within this context, I have the following scenarios:

Best case: 25bp hike and pause, hint of pause, softening of language, and/or indications that pause may be very close at hand. Result is that markets will rally strongly, but not make new highs, until inflation and economic worries resurface.

Most likely case: 25bp hike, little change in language, and indication of continuing watching of incoming data on economy and inflation.

Case#3: 50bp hike and pause, etc. Markets rally until inflation/economy fears return, but not as good as best case above. Maybe mixed reaction instead.

Worse case: 50bp hike, and no softening in language, etc. Markets decline hard. The Bear lunches.

What I am most unsure about is what the market's reaction would be to the most likely case. I can imagine a small rally (concurrent with seasonality considerations), a gentle decline growing bigger, or a volatile fight between bulls and bears before something breaks.

Did something significant happen at around 10:55am Eastern Time? Equity markets (and gold) started sliding gradually down starting then. Going to try to figure it out.

profit taking/risk management before the Fed announcement...