From "No Rate Cut" to "Inevitable Rate Hike": The Market Has Priced It In, but the Federal Reserve Is Trapped in 3.9 Trillion Debt Dilemma

⑴ Traders have fully priced in a 25 basis point rate hike by the Federal Reserve before the end of the year. The market has begun discussing the tipping point: where exactly is the turning point from “no rate cuts” to “a rate hike becoming the baseline scenario.” Some opinions believe this scenario is unlikely to occur, as the Federal Reserve Chairman appointed by Trump is more inclined to keep interest rates unchanged. ⑵ However, further rate hikes will cause interest payments on the US’s $39 trillion debt to soar, and the Federal Reserve is caught in a devastating fiscal mathematics predicament. Analysis points out that the reason traders have fully priced in a rate hike is because they know the Federal Reserve has no other choice, but this move could trigger severe sovereign debt spiral risks. Other commentary notes that the market always prefers certainty before uncertainty disappears, and that the current fully priced-in approach is “very interesting.”