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Rate Hikes Odds for 2023 Sank on Weak Economic Data Including Jobs

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21 comments on Rate Hikes Odds for 2023 Sank on Weak Economic Data Including Jobs

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Rate hike odds are from CME Fedwatch.

Change for December 2023

  • 500-525 odds went from 13.3% to 4.7%
  • 475-500 odds went from 28.3% to 16.9%
  • 450-475 odds stayed at 31.1%
  • 425-450 odds went from 18.0% tp 29.3%
  • 400-425 odds went from 5.4% to 14.0%

This is interesting in light of rate hike odds for February.

February Rate Hike Odds as of January 8

  • 450-475: 75.7%
  • 475-500: 24.3%

 Will February be the Last Hike?

The December odds imply the February hike will either be the last one or the Fed will be cutting rates this year. 

A quick look at all the months shows the market believes the Fed will be done hiking by June.

Terminal Rate 

The market expects no more than one hike after February and if the Fed gets it in, then the Fed will be cutting by December. 

What Happened on Friday?

The jobs report was anemic and the ISM services PMI was an outright disaster. 

With housing in the gutter and the rest of the economy sinking fast, perhaps the market has this correct. 

Yet, the Fed does not want a strong market response to weak days. 

FOMC Minutes Show Concern That Markets Do Not Believe the Fed’s Resolve

Please note FOMC Minutes Show Concern That Markets Do Not Believe the Fed’s Resolve

The hopiusts believe the Fed will pivot. It it does, and I think that’s likely, it will not be as much as the market expects and it will be because the Fed broke something.

Neither of those conditions rate to be good for the markets.

But the Fed has trained the markets to act like Pavlov’s dogs, so that is exactly what is happening on weak data reports.

This post originated on MishTalk.Com.

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Mike Shedlock

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21 Comments
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Oldest Most Voted
Sunriver
Sunriver
3 years ago
Pavlov’s dogs = Inflation
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vanderlyn
vanderlyn
3 years ago
i’ve been listening to larry summers every weekend on bloomberg radio for past 18 months. he’s been so right. and today he said higher rates are coming. i concur and i did concur on this since late 2021. labor is tight as a drum. a good thing if you ask me. inflation in money supply, and daily purchases for most folks is very high. the plague years literally changed everything from trillions printed to work and play activities. don’t forget many of those trillions of dollars were transferred to the states, Blue and Red, small and large states alike. much of that money has NOT been deployed. YET. r/e and bond prices can plunge. i still go back to the olden days of money supply M1 is the real deal on inflation. shadow stats covers it best. and the reality check, the gut check, the smell test, of old fashioned saying, “if my neigbor loses his job, it is a recession. if i lose my job, it is a depression”. i still cannot find one soul who wants a job and cannot find one. i keep looking and asking high and low, east to west, north to south. not a one. YET. i always assume i am wrong and will sell my losing positions in stocks and FX and my take on things like JOBS. good stuff mish. always like your blog and most of your posters. i’ve blocked the real nasties who bring nothing to the table of ideas.
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FromBrussels2
FromBrussels2
3 years ago
All 8 comments below here make sense , so does Mish …… fact is that we are in entirely unchartered territory, economically/financially , climatologically, not to mention of course the geopolitical powder keg the US of A has been creating in recent decades that might go off any time soon now …..So I d say try to prepare, place your bets and Good Luck…..gonna need it !
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WATERWIZ
WATERWIZ
3 years ago
Reply to  FromBrussels2
The previously charted territory for the present situation could be 1936 when the following year the FED raised rates into a recession and caused the depression to extend for more years ?
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Esclaro
Esclaro
3 years ago
Poor little Weimar boy! No one believes that Jerome will do what he said he’s going to do. His credibility is zero. Anyone who is counting on dollar strength from here on out is going to be disappointed.
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hhabana
hhabana
3 years ago
Reply to  Esclaro
I agree. Lettuce above 3 bucks. So what, he’s going to pivot and ratchet up when milk is 10 dollars a gallon or Organic 1/2 gallon at 10 dollars and a head of lettuce is over 7 bucks?
I have rental properties. Sales prices on “some” homes has come down, but way, way above the Great Recession. I still get texts from anonymous people offering to buy my rental properties. Still see the young guys buying on the dips in the stock market.
I buy stuff from Home Depot, use service people for my homes, buy my groceries and there is no way JP should drop interest rates. He will destroy the Middle Class. Sorry Wall Street. See you when the markets are 70-90% down.
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MPO45
MPO45
3 years ago
With the S&P 500 being down about 20% from December ’21 high, the “market” doesn’t always get things right but that doesn’t matter anyway because no one is projecting what happens when millions of boomers leave the work force this year but still continue to demand goods and services but contribute nothing to their production other than whining and complaining. Add to that number the people that go on disability because of illness (diabetes, cancer, MS, etc) and add the number of young people that are becoming remote digital nomads moving overseas and you’re talking serious labor depletion and resulting inflation.
We just finished the first week of 2023, somewhere across America 50,000 boomers “retired” and enrolled in social security and medicare. The good thing with the House finally getting a speaker is the republicans plan on cutting and rest assured some part of social security will end up on the chopping block.
I think the Fed will continue to hike but it will pause with a temporary inflation reprieve only to be faced with it again later in the year. We all have different opinions so we place our bets and that’s what makes a free market.
Still holding PUTS on XHB and home builders for January 2024 expiry.
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Esclaro
Esclaro
3 years ago
Reply to  MPO45
I want to see the Trump Death Cult vote for big social security cuts. Sure, go ahead and decimate your base of old codgers! That’s a recipe for success!
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MPO45
Esclaro
Esclaro
3 years ago
Reply to  MPO45
Excellent. If I were the Democrats I would make them vote on Social Security cuts once a week. I would hang it around their necks like a dead chicken on a bad dog. In fact I would spend the entire next two years doing nothing else so that even the stupidest old codger knows that that Kevin and his fools want to eliminate their checks.
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vanderlyn
vanderlyn
3 years ago
Reply to  Esclaro
Rs have been 100% full of BS about cuts in spending. they do the santa claus rule the old editor of WSJ came up with for them since ronnie raygun, the con man was around. when in power spend, when out of power, make believe you do not like spending. fools the middlebrows everytime. makes em feel righteous. being inconsistent is a human feature, not a bug. we all do it.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  MPO45
They will not cut Social Security or Medicare for the Boomers.
They will raise the age and cut benefits for the younger folks.
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billybobjr
billybobjr
3 years ago
With economic data post drawing little interest in the comments I would recommend a post on Trumps tax returns , after all
the MSM and Dems spent 10s of thousands of hours collectively on his returns not being released and how he was cheating ect. .
Now that the Dems have released six years worth i would expected special 1 hour shows on NBC and CNN but the
silence has been deafening. Since Trump never took a salary and donated to veterans and other groups and since the
tax info has been out for over 2 weeks you would think that you would be seeing and hearing about all the improprieties
that are surely in the returns . Of course anyone with half a brain new the IRS ( an agency of the US government always had them)
and they were responsible for verifying returns and in fact had audited him many times would have known this . You can add that
Trump didn’t do his returns but had paid tax people do it and they have to answer for their work . I do think I heard a mention of
he was using all the legal tax laws and loopholes possible for his returns to pay as little as possible . Shame on him for that
because we know that most people and businesses don’t do that. Like Russia collusion after 10s of millions spent
on that and going after the returns lets move along nothing to see here .
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vanderlyn
vanderlyn
3 years ago
Reply to  billybobjr
i think it’s coming. holidays and house of rep excitement………disctractions. i think mein fuhrer drumpf is gonna get screwed on the tax games he played with his employees and prices of buildings. i would be fine seeing drumpf and the sleepy joe biden crime family also get their just airing of dirty laundry and the law working for us mere middlebrows…………….let the games begin.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  vanderlyn
Just a personal feeling, but I think that Mr Trump will have passed on before all his appeals have been exhausted.
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Salmo Trutta
Salmo Trutta
3 years ago
Interest is the price of credit. The price of money is the reciprocal of the price level. The Fisher Effect will be denigrated.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  Salmo Trutta
The price of money is physical commodities.
Interest is an abstract, so is credit.
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8dots
8dots
3 years ago
Swing traders might benefit from the next bear market rally. China used to sell us junk t-shirts and electronics, we sold them Semi and Boeing.
China invested their money in US stocks, bonds and RE. In 2022 they are down, but China doesn’t care. Their indigenous policies forced US JV to share knowledge with them. Bombardier/ C919 got 2,000 orders while Boeing 737 was shutdown.
Our mass happiness and the high tech sector benefited from the China trade, but the rest suffered. If the next bear breach Oct lows, down
below China will buy our JV for 25 cents/dollar, including Ilan giga and be self sufficient by 2025. Ca and Fl are devastated by coastal storms.
The flyover country might benefit from a shift to US indigenous producers of high/ low tech using advance robotics and AI.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  8dots
I’m gonna keep all of my JV for myself.
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PreCambrian
PreCambrian
3 years ago
The rate hikes are intended to squash speculation in assets, not lower inflation. So beware.
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Jack
Jack
3 years ago
Reply to  PreCambrian
Why would JP want to deflate elevated asset prices but not inflation – they are the same.
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