by Mish

Today, we compare the before vs. the after, the latter is from Friday, December 16.

Following that comparison, I present my reasons why all the expected hikes are not coming.

June 2017 Rate Hike Odds Before

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September 2017 Rate Hike Odds Before

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March 2017 Rate Hike Odds After

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June 2017 Rate Hike Odds After

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September 2017 Rate Hike Odds After


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Market Expectations Before and After Synopsis

  1. March: The market did not expect a hike at the March meeting either before or after the FOMC Meeting. Nonetheless, the odds of March hike rose from 15.8% to 25.3%.
  2. June: The odds of at least one hike by June rose from 54% to 75.3%. Odds of two or more hikes rose from 11.5% to 24.9%
  3. September: The odds of at least one hike by September rose from 70.2% to 89.1%. Odds of two or more hikes rose from 28.5% to 55.5%. Odds of three or more hikes rose from 6.2% to 20.2%.

This is a much more aggressive assessment that before the FOMC meeting.

Mish Expectation

I have been betting against rate hike consensus opinion for years. The Fed managed to get in one hike in each of the last two years, both in December, vs. Fed assessments of 3-4 hikes each year.

For the third straight year, rate hike expectations for the coming year soared in December, only to quickly die at the beginning of the next year. Expect more of the same.

Five Reasons Fed Won’t Hike Twice in 2017

  1. Housing looks weak, and mortgage rates have soared. See Housing Starts Dive 18.7 Percent: Mortgage Rates Soar.
  2. The New York Fed assessment is 4th Quarter GDP will be 1.8%. If so, 2016 GDP will be on the order of 1.6%. Three hikes? Really? See Nowcast, GDPNow Diverge Widely Again: What Happened?
  3. The strengthening US dollar is hurting exports. See Trade Deficit Widens, Exports Decline 1.8%, Imports Rise 1.3%: Two Piece Puzzle
  4. Trump’s policies risk a major trade war. My baseline scenario is Global Trade War Baked in the Cake: Boeing Faces China’s Wrath. Also note China Tells Trump “Nothing to Discuss” If US Drops “One China” Policy.
  5. Retail sales weakened, led by autos. Retail Sales Unexpectedly Dive: Spotlight on Cars and the “Amazon Effect”

Bonus Reason

If you are looking for a bonus reason, consider interest on the national debt: Rate Hike Spotlight: Interest on National Debt; What Can Possibly Go Wrong?

It would not surprise me in the least if the Fed did not hike at all. It would not even surprise me if the next move was a cut.

Mike “Mish” Shedlock

Fed Hikes Today, Then What?

CME Fedwatch says the Fed Fund Futures show a 95% chance of a hike today. I suggest it’s over 99%. Then what?

Rate Hike Odds 99 Percent for June: Then What? Fed Hike Cycle Over?

CME Fedwatch places a 99.6% possibility of a quarter point rate hike on June 14.

Six Reasons Construction Boom Won’t Last

The Census Bureau reports November Construction Spending rose 0.9% from October. That’s a 10-year high, but it’s highly unlikely to last.

Rate Hike Odds Rise Again: Fed Concerned About Corporate Leverage

Despite anemic GDP forecasts for third and fourth quarter, the Fed appears to have convinced the market that it will finally hike rates in December.

How Much Can the Fed Hike Before the Yield Curve Inverts?

The market expects a 100% chance of a hike in June and a 78.2% chance of at least one more hike by September. Then what?

Pop Quiz: Should the Fed Have Hiked?

Here is the question of the day: Should the Fed have hiked on Wednesday?

Nowcast 4th Quarter 2016 and 1st Quarter 2017 Forecasts Dip Slightly: Three Hikes in 2017?

The FRBNY Nowcast for 4th quarter GDP dipped slightly today on account of the wholesale inventory report earlier this week.

Fed Hikes Quarter Point, Raises Economic Forecast

As expected, the Fed hiked a quarter of a point. Growth projections are up from December.

Fed Hikes With One Dissent: Fed Behind the Curve?

As expected, the Fed hiked interest rates 25 basis points to a range of 3/4 to 1 percent.