Skip to main content

Huge Chance of a Half Point Rate Hike in March, Fluctuating Wildly

The odds the Fed will hike rates by a half point surged following another hot CPI report.
  • Author:
  • Publish date:
Rate hike odds courtesy of CME Fedwatch Tool.

Rate hike odds courtesy of CME Fedwatch Tool.

The markets now expect the Fed will hike 50 basis points. 0.50 percentage point at its next FOMC meeting on March 16 according to CME Fedwatch

CPI Jumps Most in 40 Years

Consumer Price Index (CPI) data from BLS, chart by Mish

Consumer Price Index (CPI) data from BLS, chart by Mish

The jump in rate hike expectations follows a BLS report that shows CPI Jumps Most Since February 1982

Year-Over-Year Key Details

  • The all items index rose 7.5 percent for the 12 months ending January, the largest 12-month increase since the period ending February 1982.
  • The all items excluding food and energy index rose 6.0 percent, the largest 12-month change since the period ending August 1982.

Bond Market Reaction

US Treasury bonds reacted negatively to the data which was a bit worse than expected. 

Huge Rate Hike Probability Jump

Rate hike odds courtesy of CME Fedwatch Tool.

Rate hike odds courtesy of CME Fedwatch Tool.

I believe this is the biggest single-day rate hike jump expectation in the CME Fedwatch history.

Expectations are fluctuating wildly however, and now at 71.5% as of 10:48:29 CT.

Twitter Discussion

Key point: The Fed does not like to surprise. I expect various Fed presidents to attempt to walk down this expectation.

Looking Ahead

Scroll to Continue

RECOMMENDED ARTICLES

Key Point: Rent is supposedly only up 3.8% YOY and OER, the largest CPI component, only 4.1% YOY I do not believe those numbers. A pending hot OER would be very problematic for the Fed.

OER stands for Owners' Equivalent Rent. It is the mythical price one would pay to rent one's own house from oneself, unfurnished and without utilities.

OER is 24.251 percent of the CPI. Rent of primary residence is another 7.398 percent. 

National Rent Index Is Up 17.8% Year-Over-Year

National Rent Index Year-Over-Year Courtesy of Apartment List

National Rent Index Year-Over-Year Courtesy of Apartment List

On February 5, 2022 I noted The National Rent Index Is Up 17.8% Year-Over-Year, the BLS Says 3.3%

The new numbers from the BLS, as of January 2022,  are 3.8% for rent and 4.1% for OER. I believe both numbers are low.

Addendum 

Target Rate Probabilities for March 2022 as of 2022-02-10

Double hike now 97.6%.

This post originated at MishTalk.Com

Thanks for Tuning In!

Please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

If you have subscribed and do not get email alerts, please check your spam folder.

Mish