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How Many Times Will the Fed Hike Interest Rates in 2022?

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35 comments on How Many Times Will the Fed Hike Interest Rates in 2022?

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A per CME Fedwatch as of October 25, 2021, traders see a minimum of two rate hikes in 2022. 

Expectations

  • No Hikes: 6.2%
  • One Hike: 23.3%
  • Two Hikes: 33.4%
  • Three Hikes: 24.3%
  • Four Hikes: 10.0%
  • Five Hikes: 2.4%
  • Six Hikes: 0.3%

Odds On

  • At least two hikes weighs in at 70.4%. 
  • At least three hikes weighs in at 34.57%

The expectation appears to be between 2 and 3 hikes. 

Four or more seems outright preposterous. 

Soft Patch in the Third Quarter or Does a Recession Start?

On October 20, I asked Soft Patch in the Third Quarter or Does a Recession Start?

Third quarter of 2021 looks very recessionary. 

The bottom line number for third-Quarter GDP is odds on to be negative. The Atlanta Fed model is -1.6% with GDP being positive only due to an inventory build.

By the time the Fed ends tapering a recession might easily be at hand even if one does not start in 2021 Q3.

How Many Hikes?

I am unconvinced the Fed gets in any hikes. Meanwhile however, sentiment is such that any strong data will pencil in bets for that third hike. 

I suggest betting against that idea.

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Mike Shedlock

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35 Comments
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KidHorn
KidHorn
4 years ago
Raising rates won’t stop inflation. The problem is lack of supply. Not too much demand. Demand is lower than it was pre-covid. Biden and the democrats are once again stating something that doesn’t match the data, but since CNN agrees with them, it must be true. CNN never lies.
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FromBrussels
FromBrussels
4 years ago
They won’ t  and NEVER will!  The rotten to the bone financial system is now entirely cheap debt addicted, the ponzi house of cards would simply fall apart if this situation were to be reversed…. 
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Jackula
Jackula
4 years ago
With inflation this hot the Fed’s hand is forced. Only if the Senate confirms an even more loosey goosey money printer to run the FED will no hikes happen. Like Brainard. It looks like some factions wish to replace Powell by the crap about FED member stock trades in the media, been doing it for decades, why is it suddenly an issue a few month’s before Powell’s term is up? 
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whirlaway
whirlaway
4 years ago
How many times?   Most likely – zero.   If they do hike by just 25 basis points, the markets will start to tank, and the Fed will have to print another couple of trillion in no time.
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Jimdog
Jimdog
4 years ago
Mich, I think you are behind the curve like the FED.  Everybody and their monkey have already bet the FED won’t raise rates.  I believe they will be forced to raise at least three times.     
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Intelligentyetidiot
Intelligentyetidiot
4 years ago
Mish doesn’t seem to have any ideas other than repeating what Lacy Hunt has been saying for some time
We get it, diminishing return of debt, lower growth, Fed can lend but cant spend, etc.
What you are missing is that for all purposes and intent we have an actual regime where Fed and Treasury have fused together and are cooperating.  When Fed was set up, the idea was that it will be an independent institution with check and balances.
It was an anathema 20 year ago for the Fed to monetize government debt, let alone buy mortgage bonds or corporate bonds.
We have crossed that rubicon.
Next leg down, the Fed will buy stocks and no, contrary to what Lacy says, Fed’s mandate dont need to be changed.
We are being governed by emergency executive orders since 2009.
Inflation is a strong possibility, dont get misled by Lacy, he is living in denial as he cant come to terms with the fact that we are ending up with a politbureau and planned economy in the good old USA. 
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Tony Bennett
Tony Bennett
4 years ago
Reply to  Intelligentyetidiot
“Next leg down, the Fed will buy stocks and no, contrary to what Lacy says, Fed’s mandate dont need to be changed.
We are being governed by emergency executive orders since 2009.”
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You need to read the Federal Reserve Act. It specifies what Federal Reserve can buy … and equities not allowed.  Federal Reserve not allowed to take a loss.  Now, last year they worked in conjunction with Treasury and dipped toes into corporate credit, but Treasury put up $75 billion (first loss position) and Federal Reserve provided the additional financing.
Lacy Hunt SPOT ON …  has been right … and will be right under current monetary regime.  Mr Hunt will be the first to admit things COULD change, but will require Congressional / POTUS action.
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Intelligentyetidiot
Intelligentyetidiot
4 years ago
Reply to  Tony Bennett
Right, but congressional/potus action can come within 24hours when the stock market start going down because “the world would end as we know it” said bernank/paulson the last time that happened.
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Mish
Mish
4 years ago
Just did two podcasts with Lacy Hunt.
May take 2-3 days to edit and post them
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davebarnes2
davebarnes2
4 years ago
Whatever.
Will it affect my mortgage? Uh, no. I don’t have one.
Will it affect my credit card debt? Uh, no. I don’t have one.
Will it affect my car loan? Uh, no. I don’t have one.
Will it affect the S&P 500 or the NASDAQ? No one knows.
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Captain Ahab
Captain Ahab
4 years ago
Reply to  davebarnes2
Yield and price are inverse. That said, an increase in the interest rate on 10 year T-bonds of 0.1% (10 points) is not likely to decrease the price of said bond by any significant amount. However,  a hike of 100 points is likely to send a message the Fed is serious about its diet, and stock/bond prices will drop accordingly.
My bet, three hikes, all less than 0.2%. No big deal for the markets–keep stealing from the workers and savers with negative real rates getting closer to 10%.
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davebarnes2
davebarnes2
4 years ago
Reply to  Captain Ahab
Our financial assets are 87% stocks and 10% bonds.
Our bond fund is short/medium term.
Even 100 basis points would not impact our retirement in any meaningful way.
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Eddie_T
Eddie_T
4 years ago
Reply to  davebarnes2
I love resilience.
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kiers
kiers
4 years ago
If Inflation is everywhere and always a monetary phenomenon, where is the money coming from?  Fed is tapering, then hiking.  Fiscal is already brewing outrage, likely maxxed out; taxes can go no lower; the one time fiscal dump of 15% of GDP is already digested and spent;  the monetary side balance sheet of the fed already deployed in markets where private investors have to displace into riskier assets.  Where’s the continued monetary flow to sustain inflation coming from?
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Bam_Man
Bam_Man
4 years ago
Reply to  kiers
Tapering does not mean “stopping”. Tapering means they will slowly dial down the insane rate of money printing from “11” to a lower number. They can never stop completely with FedGov spending and deficits terminally out-of-control.
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KidHorn
KidHorn
4 years ago
Reply to  kiers
Inflation is always about supply and demand. Right now we have low supply of many goods.
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ToInfinityandBeyond
ToInfinityandBeyond
4 years ago
The Fed has totally screwed up by intervening in the financial markets over the past dozen years or so and as a result will not be able to raise interest rates in any meaningful way. Each one percent increase in rates raises their annual interest bill by just over two hundred billion dollars.  Given that the 2021 federal budget deficit is already at $2.8 trillion there is no way they can take the additional interest expense. Realistically there only option is to let inflation run hot for a few years to first  lower the debt to GDP ratio back down to manageable levels and then tackle inflation.  Their only other option, other than jawboning, is to continue with yield curve control perhaps even mandating that financial institutions buy and hold treasuries to help bail them out. Time to get rid of the Fed altogether – they add no value.
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EGW
EGW
4 years ago
The last time they tried to taper the stock market threw a huge fit and they gave up. If they can’t even go through with a full cycle of tapering then there is no reason why they would be able to hike rates either. A taper and/or rate hikes would be bad for the stock market and zombie corporations but it needs to happen even if it sparks a major recession. We need to clear out the economic mal-investments and make room for good growth.
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Esclaro
Esclaro
4 years ago
The USD is up today because those fools think rate hikes are baked in the pie. Morons. Pawning off the dollar on the dupes of the world is the biggest stunt we have ever pulled. Only the Russians and the Chinese know it’s toilet paper!! 
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Bam_Man
Bam_Man
4 years ago
Reply to  Esclaro
The USD is only up against other G8 garbage fiat currencies that are in the DXY.
It is down $14 today vs. Gold, which quoting Greenspan himself is “currency par excellence.”
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Esclaro
Esclaro
4 years ago
Reply to  Bam_Man
Yes. The Russians and the Chinese both know this too. Impressive showing by gold today.
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Scooot
Scooot
4 years ago
I’m going for zero hikes.
I think a recession is very likely but inflation will stay well above 2% for a long time. From an inflation viewpoint I think they’re already behind the curve but they’ll stick with their transitory story and hope the economic slowdown will deal with it, which I doubt. 
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Bam_Man
Bam_Man
4 years ago
The economy will already be in recession by January 1, 2022 – although not recognized “officially” as such.
As usual, the Fed will be so far behind the curve that they will most likely tighten at least once while the economy is already in recession.
That gives them the ability to do one 25bps rate cut to get this crippled, maladjusted economy out of recession. Think that will do the trick?
Negative rates, here we come.
Oh, and I forgot to mention, we will enjoy 5+% inflation the whole time.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  Bam_Man
“The economy will already be in recession by January 1, 2022 – although not recognized “officially” as such.”
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A few things.  You may well be correct on recession call, but economists are usually very poor at inflection points in economy.  So, it will likely be months later (and multiple revisions of data)  before recognized.  But after March 2020 fiscal insanity ($trillions at a drop of the hat) you can’t discount a similar panic which will kick the can a bit further.
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Tony Bennett
Tony Bennett
4 years ago
“How Many Times Will the Fed Hike Interest Rates in 2022?”
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What is zero.
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Eddie_T
Eddie_T
4 years ago
Reply to  Tony Bennett
I’d bet they get in one before they deeply regret it.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  Eddie_T
Possibly.
But the problem is Jay Powell’s term as Chairman ends in February.  He wants another, but POTUS has not nominated anyone yet.  No way he hikes anytime soon lest risk market meltdown … along with his chances.  By time that in rear window … reality of economy sans massive stimulus will be apparent … to all.
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Eddie_T
Eddie_T
4 years ago
Reply to  Tony Bennett
Explain a bond investor’s strategy given no hikes. Do you really make money when we’re so close to the zero bound? Are you trading the short term moves? Just curious about how you bond guys make money in this environment.
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dbannist
dbannist
4 years ago
Reply to  Eddie_T
You can make massive amounts of money in the bond market if interest rates drop quickly.
I have a friend who doubled his money in short order March of 2020 in the bond market.
No one holds a US treasury anymore to term.  It’s all about the short term moves.  Eventually there will be a lot of bag holders, but that’s true for any investment.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  dbannist
“You can make massive amounts of money in the bond market if interest rates drop quickly.”
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Yes.  Everyone ignores capital gain (where the action is) and instead focuses on interest income (where it is not).
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Scooot
Scooot
4 years ago
Reply to  Eddie_T
Apologies if I’m teaching you to suck eggs but this is my rather long winded way of explaining it.
The price of a bond is the present value of its future cash flows. So a 10 year bond with an annual 2% coupon, yields 2% at a price of 100. If current 10 year yields fall to 1% the price of the 2% coupon bond would rise to 109.47. In other words if you discount each annual 2% coupon and the 102 you’d receive at maturity by 1% you’d get a present value of 109.47.
So knowing the above the holder of the 2% coupon bond would have two choices. They can either hold it to maturity and receive 2% each year instead of the 1% you’d currently get by buying in the market, or they could sell it for 109.47 and receive the present value early. Either way the bond holder is theoretically receiving the same amount, either 109.47 now or 2% per year etc until maturity.
Therefore from a bond investors viewpoint, in this instance a 10 year bond investor’s, what’s important is what happens to 10 year yields in the future, (and credit risk), not necessarily whether there are any rate hikes or not. Of course, rate hikes, depending on circumstances would most likely have some impact on 10 year yields, but as others have said, it’s the direction and extent that they move in future that’s important, not the absolute level they’re trading at.
If yields fell another 0.5% from the 1% to 0.5% that 2% coupon bond price (present value) rises to 114.6.
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Eddie_T
Eddie_T
4 years ago
Reply to  Scooot
Thanks, everybody. I do understand that price goes up when yields fall. I just lack any experience in trading that market, so I don’t understand it nearly as well as most other markets.
I have no idea how to shape a trade or how much leverage you have to use to make a trade pay off enough to be worth it….that kind of thing. In this present market, it just looks like you’d need to be lightning fast, and probably need some leverage to make money…..not like the last 30 years where bond prices were trending the whole time.
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Scooot
Scooot
4 years ago
Reply to  Eddie_T
In terms of trading them I couldn’t tell you as a layman as I’ve only traded them professionally in a past life when the parcels were usually in the millions. Currently I’d just buy a bond fund if I wanted fixed income exposure. 
You can use this bond price calculator to get an idea of price movements per basis point yield movement.
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kiers
kiers
4 years ago
Reply to  Eddie_T
you’ve never heard of “repo”?  “repo” = magic.  study.
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dbannist
dbannist
4 years ago
Honestly, if you look at infections and deaths they were trending massively down before Delta.  They did spike, but in the grand scheme of things it was a very short spike and not all that bad.More and more people have natural immunity.  That is only going to progress in the right direction.  More and more people are giving in and getting the vaccine.  Once you get it it confers immunity of some sort for at least a year, even if it does diminish.  So that number is only going to go in the right direction.

I believe the biggest risks facing the US economy are coming from two directions, both of them supply related.
1. Energy.  
2. Supply chain mess.

Either one of those by themselves will bring a recession.

I predict one rate hike followed by a massive temper tantrum due to an entire generation of speculative investors never really seeing the FED hiking in any substantial way.

Newer highs in the stock market is the only thing propping up investor sentiment at the moment.  It’s certainly not the economy itself.

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