JPM July FOMC Trading Guide — Hold Is Base Case, but Hike Tail Is Not Trivial

JPM’s US Market Intelligence desk frames the July FOMC as a high-uncertainty event with the most likely outcome being a hawkish hold, but with a non-negligible hike tail. The desk assigns only a 30% combined probability to a hike, while market pricing has been closer to a 35% hike probability. The key desk view is that the market is slightly overpricing the chance of action, but the event still matters because the options market is pricing only about a 0.8% one-day SPX move.

The core message: the Fed probably holds, but it will not be a clean dovish relief event.

1. JPM Scenario Matrix

The distribution is skewed slightly negative because the downside from a hike is larger than the upside from a dovish hold. That matters because even if the Fed holds, the expected value for equities is not obviously large enough to justify complacency.

2. Probability-Weighted SPX Reaction

Using the midpoint of each expected SPX reaction range:

The probability-weighted expected move is approximately:

−0.030−0.350−0.063+0.210+0.003=−0.230%−0.030−0.350−0.063+0.210+0.003=−0.230%

So the JPM scenario matrix implies a modestly negative expected one-day SPX move of roughly:

-0.23%-0.23%

That is not a crash setup by itself, but it does suggest downside convexity is still worth owning because the left tail is larger than the right tail.

3. Options Pricing Looks Reasonable but Not Rich

Options expiring on July 29 are pricing about a 0.8% SPX move based on July 28 prices. For reference, recent CPI events have priced roughly 1.1%.

Relative to JPM’s scenario distribution:

• The average expected move is small, around -0.23%.

• But the tail move if the Fed hikes is much larger, around -1.5% to -2% for SPX.

• A 50bp hike, while only 1% probability, would be a much larger shock.

• NDX could see about double the decline in the 25bp hike scenario.

This means options are not obviously cheap on average expected move, but downside tails remain relevant because the distribution is asymmetric. Short-dated downside hedges can still make sense for portfolios exposed to growth / AI / momentum.

4. JPM Thinks the Market Is Overpricing the Hike Risk

JPM Market Intelligence thinks the probability of a hike is lower than market pricing, around 30% versus roughly 35% priced. Their argument:

1. US GDP growth is near trend, with upside risks.

2. Inflation remains elevated but is not at risk of an upside explosion.

3. June would have been the more logical hiking window if the Fed wanted to act, since CPI was above fed funds then.

4. Recent soft CPI makes a July hike harder to justify.

5. The Fed would risk sending a confusing signal about its reaction function.

This aligns with Feroli’s view: the Fed should hold, but the decision will be contested.

5. Feroli’s FOMC Preview: Hold with At Least Two Hawkish Dissents

Feroli expects the FOMC to leave rates unchanged, with at least two hawkish dissents, likely from Hammack and Logan.

The logic for a hold is straightforward: the Committee unanimously held rates at the last meeting, and since then the key inflation reading has been the softest in years. Hiking immediately after that would create confusion around the Fed’s data reaction function.

Feroli’s key point is important:

No forward guidance is acceptable if the public understands the reaction function. But no forward guidance plus an unstable reaction function would be concerning.

That is the core risk under Chair Warsh. Markets can live with less forward guidance, but they need clarity on how policy responds to inflation and growth data.

6. Why the Board Likely Holds

Feroli highlights several influential Fed voices that support patience:

Waller

Waller said that if the Fed got another hot core inflation reading, then the FOMC would need to consider tightening in the near term. But the subsequent CPI was very cool, and PCE may be lukewarm. That suggests Waller is not on edge to hike now.

Jefferson

Jefferson said the current policy stance should continue to support the labor market while allowing inflation to resume its decline toward target. He was not dovish outright, but he did not sound ready to hike immediately.

Cook

Cook said it was prudent to give inflation more time to unfold.

Williams

Williams gave arguably the most dovish remarks, noting inflation worries but listing several reasons why inflation should move lower.

Together, the Board and NY Fed appear inclined toward patience. A hike would probably require Chair Warsh to make an unusually forceful case. While the Chair matters, the FOMC is not a dictatorship, and Warsh likely gives some reciprocal deference to the Board.

7. Dissents Matter — But No Dissents Could Be Too Dovish

Feroli expects at least two hawkish dissents from Logan and Hammack. Kashkari is possible but less certain. Paulson is expected to vote with the majority.

This creates an interesting communication challenge. If the Fed holds with no dissents, markets might read the outcome as too dovish. But if there are multiple dissents, the hold is clearly contested, which keeps September hike risk alive.

The most likely message is therefore:

• Hold rates steady.

• Acknowledge inflation remains elevated.

• Potentially reference readiness to act if needed.

• Show at least two hawkish dissents.

• Avoid explicit forward guidance.

• Keep September live.

That is the definition of a hawkish hold.

8. Statement Risk: Conditional Hawkish Language

The June FOMC statement was a complete rewrite, unlike the usual incremental statement changes. If July returns to incremental changes, there may not be many obvious edits because the macro narrative has not changed enough:

• Activity is expanding at a solid pace.

• Inflation remains elevated.

• Labor market remains strong enough.

• Policy remains restrictive.

The prior statement ended with:

“The Committee will deliver price stability.”

Feroli suggests hawks could push for conditional language like:

“If necessary, the Committee would take action to deliver price stability.”

That would not be explicit forward guidance, but it would be a hawkish conditional signal. Markets would likely interpret it as preserving the option for September.

9. Warsh Press Conference Risk

Feroli has modest expectations for learning much from Warsh’s press conference. At prior events, Warsh avoided detailed discussion of economic developments and said, effectively, that he had nothing more to add beyond the statement.

This style matters because the market needs clarity. If Warsh refuses to explain the Committee’s thought process, a hold can still be destabilizing. Investors may price higher uncertainty around the reaction function, especially if the statement is terse and there are multiple dissents.

The risk is not just the decision. It is that the market comes away thinking:

• The Fed is less predictable.

• The Chair is less communicative.

• The reaction function is unstable.

• Policy uncertainty should be priced higher.

That could push up rates vol and equity risk premium even without a hike.

10. Asset Reaction: Fed Days Since 2021

JPM’s historical table shows average one-day Fed-day returns from June 2021 to June 2026.

Broadly:

But the more important split is by 10-year yield move:

When 10-Year Yields Fall More Than 2bps

Equities usually perform better:

• SPX: +0.4%

• NDX: +0.8%

• Tech: +0.9%

• Cyclicals: +1.1%

• ARK: +1.1%

• Gold: +0.7%

• 2Y yields: -9.0bps

• 10Y yields: -8.6bps

• VIX: -0.9

When 10-Year Yields Rise More Than 2bps

Equities weaken:

• SPX: -0.3%

• NDX: -0.2%

• RTY: -0.5%

• Real Estate: -1.0%

• Materials: -0.8%

• Consumer Discretionary: -0.7%

• Gold: -1.2%

• DXY: +0.2%

• WTI: +0.6%

• 2Y yields: +8.7bps

• 10Y yields: +6.7bps

• VIX: +1.0

The cross-asset message is simple: the equity outcome is likely less about the Fed decision label and more about the rates reaction.

11. Equity Beta to Rates / Dollar

JPM estimates that a 10bp move in rates produces:

• DXY beta of roughly 0.5–0.6

• SPX beta of roughly 1.5%–2.0%

The text does not specify sign in that bullet, but in the current macro regime the practical interpretation is:

• Rates down → DXY lower, SPX higher

• Rates up → DXY higher, SPX lower

This is why the Fed hold can still be risk-negative if the market interprets the statement as insufficiently clear or too hawkish, causing the belly / long end to sell off.

12. Relative Equity Implications

If 25bp Hike

JPM expects SPX down 1.5%–2.0%, with NDX potentially experiencing double the decline. That implies NDX down roughly 3%–4%.

However, they think RTY may outperform on the move lower because the market has shifted into anti-momentum / anti-AI positioning. This is somewhat different from a traditional “rates up hurts small caps most” framework; the immediate shock could be more concentrated in crowded AI / momentum.

If Hawkish Hold

SPX likely ranges between +0.25% and -0.50%. This is the base case and is not a large directional event unless Warsh mishandles communication or rates sell off materially.

If Dovish Hold

SPX gains 0.50%–1.00%, the best outcome for equities. This would likely help tech, growth, long-duration equities, and gold while weighing on USD.

If Cut

The outcome is ambiguous. A cut could be risk-positive if treated as easing, but risk-negative if perceived as political interference or loss of Fed independence. In the latter case, yields and breakevens rise, vol rises, and stocks weaken.

13. Trading Takeaways

Best Base-Case Read

The highest-probability outcome is a hawkish hold with multiple dissents. That likely keeps equities choppy rather than creating a major relief rally.

Best Hedge

Given the hike tail and the fact that options price only a 0.8% move, downside hedges in NDX / QQQ or selected AI momentum baskets remain useful.

Best Risk-On Trigger

A dovish hold with rates falling more than 2bps would be the cleanest bullish setup for equities. In that case, historical Fed-day behavior suggests NDX, tech, cyclicals, ARK, and gold would outperform.

Best Risk-Off Trigger

A hike, or a hold that pushes yields higher, likely pressures SPX. NDX could be the main downside expression if the market interprets the move through the lens of anti-AI / anti-momentum.

JPM’s trading desk view is that the Fed most likely holds in July, but the meeting is meaningfully contested. The base case is a hawkish hold with at least two dissents, likely Hammack and Logan, producing an SPX reaction between +0.25% and -0.50%. A 25bp hike is assigned a 20% probability and would likely send SPX down 1.5%–2.0%, with NDX potentially down twice that. A dovish hold is the best equity outcome, with SPX up 0.50%–1.00%.

The desk thinks hike risk is lower than market pricing, but the left tail is large enough to matter. Options expiring on July 29 price only a 0.8% SPX move, so downside convexity is still relevant. The key market variable is not simply hike versus hold; it is whether rates rise or fall after the decision. If yields fall, equities can rally. If yields rise, particularly on a confusing or hawkish Warsh message, equity risk premium can rise even without a hike.