What happened? Two things discussed below.
October 2026 Fed Rate Probabilities
- No Change: 71.5 Percent
- Quarter-Point Hike: 24.0 Percent
- Half-Point Hike: 2.8 Percent
- Three-Quarter-Point Hike: 0.1 Percent
- Quarter-Point Cut: 1.6 Percent
The net is 25.3 percent for at least one quarter-point hike. That is up from 4.2 percent yesterday.
What Happened?
- Trump is sending more troops and warships to the Middle East. This has rattled the markets.
- Fed Governor Christopher Waller changed his tune from supporting rate cuts.
There is no economic news today that may have influenced the bond markets like this.
Iran War Prompts Caution From a Fed Dove
WSJ: Federal Reserve governor Christopher Waller has supported interest-rate cuts for most of the past year and dissented against the central bank’s decision to hold rates steady in January. He was ready to dissent again this week, he told CNBC on Friday morning, but the closure of the Strait of Hormuz and the potentially inflationary effects of a global oil crunch led him to vote for a pause instead.
“Two weeks ago, when the jobs report came out and it was negative 92,000, I thought, that’s it. I’m dissenting,” Waller said in the TV interview. “Since that time, the Strait of Hormuz was closed, this is looking like it’s going to be a much more protracted conflict, and oil prices are going to stay high for a long time.”
Waller’s comments show how anxiety about the inflationary effects of the war helped Chair Jerome Powell build an 11-1 majority in favor of holding rates steady this week. Over the past year, Waller has resisted the argument that President Trump’s tariffs are likely to lead to sustained inflation, but he warned Friday that an oil shock could be different.
Weighted Average CME Fed Target Rate Probabilities
Today’s jump in rate hike odds did not change the overall probabilities that much. This is because of the high odds the Fed does nothing at all.
Here’s another way to calculate. A 25 percent chance of a quarter-point change changes the basis point odds by 0.25 * 0.25 = 0.625 (6.25 basis points).
Looking Further Out
I calculated the implied target rate for March 2027 at 3.68 percent. That’s the same as December.
For June of 2027, the implied target rate is 3.61 percent.
Thus, the market expectation is now that the Fed will do nothing for over a year!
Meanwhile, the odds of hikes keep rising slowly but surely. That’s because the market is becoming more and more convinced high oil prices are here to stay.
Related Posts
March 17, 2026: Six Rules Suggest the Fed Should Not Be Cutting Interest Rates
The Cleveland Fed projects interest rates based on various rules.
March 18, 2026: Fed Press Conference Key Point, 3 Times Powell Said “We Just Don’t Know”
“And no one else does either,” said Powell. Ponder what that implies.
March 19, 2026: Odds of Fed Rate Hikes Now Exceed Cuts Through October
President Trump did this. I discuss five Reasons.
March 20, 2026: Trump Sends Thousands More Troops and 3 More Warships to the Middle East
One day after saying ‘We’re Not Putting Troops Anywhere’ comes this announcement.
The market definitely did not welcome today’s news.
The Fed is likely to keep rates were they are until November, corresponding to 10-year Treasury yields that were kept suppressed in 2016.
In January 2016, Yellen dropped 10-year Treasury yields to an average of 1.75 percent. Yellen kept rates depressed until the end of October, just before the elections. The Fed can repurchase these maturing Treasuries without taking yields down to the rate they were purchased. Unlike what Powell did in 2019, when his QE pivot took rates down to 3 percent. Because the current Fed can utilize the extra liquidity saved by not returning Treasury interest on their balance sheet holdings for the last 3 years, the Fed can repurchase maturing Treasuries at a higher rate. And the Fed’s balance sheet averages twice that of 2016, which adds to their collected interest.
In the middle of 2016, there was a rout in long Treasury yields produced by overseas buyers with Brexit anxiety. These investors should have sold during the pandemic, if they were smart. The Fed would quietly enact QE to account for these Bonds if these investors held. As the Fed stealth QE in May 2025 purchased $44B in Treasuries as a test.
The current GDP growth rate for St. Louis is 2.05% as of March 2026
Some economists do not understand the differences between demand pull inflation and cost push inflation. Apparently many are in high places. Each inflation requires a different strategy.
There is no such thing as the “wage-price spiral”; the “price-wage spiral”; or the “cost-push spiral”, in the sense that increases in wages, prices, or costs are causes of inflation. Unless effective demands (money times its velocity) are adequate to prevent a cutback in sales, or a diversion of purchasing power to the price raisers, any administered increase in prices will result in less sales, smaller outputs, less employment, lower payrolls and less demand for products—in other words, depression and deflation in due course
I did not say anything about spirals up or down.
The issue is what is the correct interest rate policy for each condition.
Spirals are a result of foolishly enacted ignorant policies.
The money stock (& DFI credit, where: loans + investments = deposits), can never be properly managed by any attempt to control the cost of credit, R *, or Wicksellian: equilibrium/differential *real* rates, [or thru a series of temporary stair stepping or cascading pegging of policy rates on “eligible collateral”; or thru “spreads”, “floors”, “ceilings”, “corridors”, “brackets”, IOeR, or BOJ-yield curve control, YCC].
Ouch for those not hedged with the VIX or SQQQ!
This is spreading into a regional ground conflict. For the US to capture and defend the oil infrastructure of Iran? ~ It will take a massive ground force.
So far they can not even defend Qatar or Saudi Arabia. But that’s easy to say from my armchair and bowl of popcorn.
B52’s are said to be carpet bombing portions of Irans cities with conventional ordinance. Perhaps it is cheaper than training missions and proper disposal of millions of depleted uranium bombs with nearly expired shelf life?
Sure as hell would not want to be an Iranian child living in a major city. Death is raining from the sky and food and water are becoming scarce. Perhaps those schoolgirls were the lucky ones?
Peter Tosh
Downpresser man, where you gonna’ run to?
Downpresser man, where you gonna’ run to?
Downpresser man, where you gonna’ run to?
All along that day
You gonna’ run to the sea
But the sea will be boiling
When you run to the sea
The sea will be boiling
When you run to the sea
The sea will be boiling
All along that day
You gonna’ run to the rocks
The rocks will be melting
When you run to the rocks
The poor rocks will be melting
When you run to the rocks
The rocks will be melting
I said, all along that day
So I said, downpresser man, where you gonna’ run to?
I said, downpresser man, where you gonna’ run to?
I said, downpresser man, where you gonna’ run to?
All along that day
You drink your big champagne and laugh, ha-ha, ha-ha, ha-ha
You drink your big champagne and laugh (downpresser man) ha-ha, ha-ha
You drink your big champagne and laugh (downpresser man) ha-ha
All along that day
I wouldn’t like to be a flea
Under your collar, man
I wouldn’t like to be a flea
Under your collar, man
I wouldn’t like to be a flea
Under your collar
All along that day
You can run but you can’t hide
You can run, but you can’t hide
You can run, but you can’t hide
Telling you, all along that day
You gonna run to the Lord
Begging him to hide you
You gonna run to the Lord
Begging him to hide you
You gonna run to Jah
Begging him to hide you
All (all along that day) all along that day
And I said, downpresser man, where you gonna run to?
Where you gonna’ run to?
Downpresser man, where you gonna’ run to? (downpressor man)
I said, all along (downpressor man)
Along that day (downpressor man)
Downpresser man, downpresser man (downpressor man)
Downpresser man, downpresser man
Where, downpresser man, where you gonna’ run to?
Downpresser man
I don’t know where you gonna’ run to
All along that day, downpresser man
You can’t run, you can’t bribe Jah, Jah
Can’t call him in a bar
Fi go drink some devil soup
Can’t bribe him around the corner
Can’t test Him faith
Downpresser man, Lord, downpresser man (downpressor man)
I said, downpresser man, don’t run (downpressor man)
Downpresser man, downpresser man, where you gonna run to?
Downpresser man
You can’t bribe no one (downpressor man)
Them no want no money
Them run lef’ money (downpressor man)
‘Cause money get funny
(Downpressor man)
The Feds balance sheet keeps showing inflation and QE.
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
Damn, it was tough day on the market
The Judean – Pedophilian work ethic is no longer working
All kinds of silver gaps to close going back to November. $47 would not surprise me.
Trump’s interest rate populism will win in the short term. Republicans including Warsh are just too scared of Trump’s Truth Social posts, notwithstanding their awareness of his economic illiteracy. The ultimate economic outcome for the US will be the same as in Turkey: raging inflation. But by then, Trump may well be gone, and we will all rub our eyes wondering why this happened to us.
There was a news story about specialized drones roaming over a US Air force base (the ones with the nukes) and I can’t help but think of Zelenskyys ploy to send a truck full of drones right up to the door of Russia’s air base and letting them loose.
What if a good chunk of US bombers are shredded by drones? of course if drones can take out bases they can take out nuclear plants too, dams, bridges, and whatever other mayhem.
https://abcnews.com/International/multiple-waves-unauthorized-drones-spotted-strategic-us-air/story?id=131245527
Got exit strategy?
Yields on the 2 year US Treasuries jumped over 0.5 basis points since the beginning of the month, while yields on the 10 year US Bond jumped 0.4 basis points. The yield on the 30 year US Bond is close to breaking the 2024 high.
Powell is going to raise rates, but cushion the action with the “It’s only temporary” speech.
It’s “transitory”, inflation is always “transitory.” TLT is getting to bargain basement levels with a nice yield.
Minor math point, 0.25 * 0.25 = 0.0625, but the text 6.25 basis points is correct.
$39 trillion in debt and some folks are talking about 0.25% change in rates….LOLz
This ship (the Ameriburger economy) is sinking faster than the Iranian navy….funny thing is, both were sunk by the same guy.
Iranian strategy is working. Limiting energy, fertilizer, chemicals flow through Hormuz Strait creates economic problems in Western world. Trump can’t order US oil companies to sell oil at $60 barrel to keep prices low. He also needs $200 billion to continue the war for next 3 months. Bond market smells inflation. People smell recession.
Iranians know that mid-terms are coming and recession, high gasoline prices and boots on the ground in coffins do not win elections. This limits Trump’s maneuvering space. If the war lasts few more months the regime change happens in Washington, not in Teheran. Lame duck presidency, loss of swing states, many loses in red states on state and local level.
The Iranians are going to have some ice cold propaganda when he gets the boot… and even cold if he manages to declare martial law and stay in power.
Yup, the orange man has made a big mess using his superior intellect
I’m praying to the Burger King and the ghost of Colonel Sanders that Trump croaks soon. He’s an obviously sick and deranged lunatic and he’s going to bring everything down with him.
I was told that Taco Bell runs the show.