The Market Prices In Still More Fed Interest Rate Hikes

CME Fedwatch Data, Mish weighted average calculation 

Rate Hike Synopsis

On January 11, the market expected the terminal interest rate to be about 5.0 percent in May. By December, the market expected the Fed to cut rates to a range of 4.25 per cent to 4.50 percent. 

Over the past month, the market ratcheted up rate hike  expectations significantly.

As of February 27, the market expects the terminal interest rate to be about 5.5 percent in July. By December, the market expects no more than an eighth of a point cut to a range of 4.25 per cent to 5.00 percent. 

Question of the Day

Do you want to hold stocks or is 5.00 percent guaranteed enough? 

At an individual level, you have a choice. 

In aggregate, there is no choice nor any possible escape.

No matter what the price, someone must hold every share of stock perpetually.

What About Bitcoin?

For discussion, please see Why Bitcoin Won’t Reach Mass Adoption Ever: A Three Generations Theory Rebuttal

I present three points of view. There’s something for everyone to like and hate.

This post originated at MishTalk.Com.

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Salmo Trutta
Salmo Trutta
1 year ago

Lenin once
pontificated to the effect that he would destroy capitalism, and presumably
capitalists, by making their money worthless.

Inflation cannot
destroy real property nor the equities in these properties, but it can and does
capriciously transfer the ownership of vast amounts of these equities thus
unnecessarily accelerating the process by which wealth is concentrated among a
smaller and smaller proportion of people.

The concentration
of wealth ownership among the few is inimical both to the capitalistic system
and to democratic forms of government. A financial oligarchy and a government
of, by, and for the people, simply cannot exist side by side.

Lisa_Hooker
Lisa_Hooker
1 year ago
Reply to  Salmo Trutta
True individual freedom and a Government of, by, and for the people cannot exist side by side.
Mob rule is not beneficial in the long run.
worleyeoe
worleyeoe
1 year ago
Let’s get ready to rumble. Here comes 6%!
dtj
dtj
1 year ago
One more rate hike to 5% and that’s it. The Bureau of Lies claims the CPI is up only 0.5% in the last 6 months. They’ll soon be proclaiming inflation is under control and no need to raise rates further.
Rates over 7% will kill housing and they don’t want that. They’re in panic mode with the housing market. FHA just decreased premiums and HUD announced extended mortgage forbearance.
vanderlyn
vanderlyn
1 year ago
Reply to  dtj
they don’t give a hooey about housing busting. just a great opportunity for the FED’s owners, the bankers and their kissing cousins the blackrocks to swoop in.
worleyeoe
worleyeoe
1 year ago
Reply to  dtj
Housing needs to take a shellacking. It’s WAY OVER priced in about 75% of the country.
Once a real recession arrives, they’ll start trotting out rent & mortgage relief which is the new gold standard for saving the housing market.
Modern Monetary Theory rules nowadays but without the tax hikes to remove excess liquidity.
As such, we’re on a debt bomb collision course, and it doesn’t really matter what the BLS says anymore, whether it’s true or fake.
vanderlyn
vanderlyn
1 year ago
the case for deflation seems preposterous. everyone has a job, and prices are wildly higher today than they were just 3 short years ago. INFLATION IS CUMULATIVE. SHE STAYS HIGHER THAN A BONG HIT.
Casual_Observer2020
Casual_Observer2020
1 year ago
Reply to  vanderlyn
Which is why rates will go higher until unemployment goes way higher.
vanderlyn
vanderlyn
1 year ago
the rookies and amateurs usually never ever figure out the one thing that have a statistically valid positive affect in the near term next couple of years on stock prices. there is no such thing as a market. like saying your grocery market. when you just buy a dozen items. anyway, the FED is jacking up rates for one reason only. to re load their bazooka so when the bankers that own the FED, and our empire, need another bailout. HONORS QUIZ FOR ALL MISH READERS. why are the greatest 5 years in amerikan stock market history happen in the middle of the great depresssion. answer. FED “printed” 75% by devauling the buck from 20 to 35 to an ounce of gold. boom went the market. 1933. i’ve made so many free drink and dinner bets on that little gem. i’m just glad so many investors are clueless. like the suckers i played poker with in my youth and the weekenders at the racetrack, before i pivoted to wall street.
Scooot
Scooot
1 year ago
Reply to  vanderlyn
Yeah it certainly was a massive rally from 1933, but it had fallen 90%ish first, I’m guessing the capex value before the 1933 rally was a fraction of today’s value and stocks were probably the cheapest they’d ever been? I get your point though. 🙂
PapaDave
PapaDave
1 year ago

Question of the Day

Do you want to hold stocks or is 5.00 percent guaranteed enough?

At an individual level, you have a choice.

Stocks. Mostly Canadian (and some US) Oils. I’m earning 7% in dividends on my portfolio. Which is well over 20% based on my original purchase prices. Plus all the capital appreciation over the last few years. And more expected over the next 7 years.
vanderlyn
vanderlyn
1 year ago
Reply to  PapaDave
i prefer equities with huge dividends. they should be greater than bonds. for many reasons. i’m gonna start dipping back into chinese equities. i love going back to the same names i made money on. of course one must be ready to toss over board if biden gets even dumber than he is with sanctions on russians. i got out with skin of my teeth on russian stocks right before sanctions. some of my pals still locked up money. that hurts. losing sleep is the worst thing for a trader, imho. look at EEX cash flow. they put on conventions. know one of the companies they bought last year. people are dying to get together in conferences with all the home office work……………
PapaDave
PapaDave
1 year ago
Reply to  vanderlyn
Nice. I also find good dividend stocks more rewarding than bonds and fixed income. Thanks for the reply.
worleyeoe
worleyeoe
1 year ago
Reply to  PapaDave
Don’t forget to add some utilities in the coming months, if you feel like the economy is getting close to a recession. They’re defensive and tend to rise when interest rates fall, and they usually have solid dividends.
PapaDave
PapaDave
1 year ago
Reply to  worleyeoe
Thanks. I already have a few banks and utilities. But mostly oil stocks.
hamsaplo
hamsaplo
1 year ago
I just bought a 9 month CD at 5%. Well rated high yield (i.e. risky) bond funds like FAGIX and ARTFX Are yielding 3-4%. Is that picture stable? I am fairly financially naïve but this reminds me of the picture back in 2008 when my risk free checking account paid 5%. it seems like a “junk bond” should be paying/promising more that a boring old CD.
Casual_Observer2020
Casual_Observer2020
1 year ago
The powers that be want Trump or someone similar back in office. These powers I refer to are Saudi Arabia and other oil producing countries. There are very powerful forces in the world working against the United States and Europe as nation-states that once use to be allies. They got a taste of what the world is like with the world’s largest economy being run autocratically and they want more. So don’t be surprised at anything that happens between now and 2025. I expect oil prices to magically come down circa November 2024 but until then rate hikes. When the US wasn’t such a divided country, life was better. But now that Saudi Arabia and Russia have fully exerted their power on the world, we will eventually see multiple states secede from the union by 2028 and the end of the United States as we know it. Don’t say you weren’t warned.
Salmo Trutta
Salmo Trutta
1 year ago
Succession would occur if the FED issued a new currency to replace the old one.
Casual_Observer2020
Casual_Observer2020
1 year ago
Reply to  Salmo Trutta
It won’t take a new currency for secession to happen. States will start peeling off once the Court makes some dramatic changes to interpreted laws in favor severe deregulation of nearly everything. This court is going to go very far and be around for a long time. It is really a question of who goes first at this point and when. I actually think by the end of the decade, we are going to have a series of panics in the currency markets that wipes out most wealth due to inflation. The country is going to find out very quickly what deregulation can become. Think the panics in the 1800s.
MarkraD
MarkraD
1 year ago
There’s also the possibility of SCOTUS expansion, it’s happened twice in US history.
I agree on the effects of deregulation, money in politics is evolving Democracy into a disorganized corporation, started @ 1977’s Buckley Valeo, bolstered by Citizen’s United.
At some point the SCOTUS is going to be forced to address the appearance and definition of “bribery”, defined as a “high crime” in the Constitution.
.
Rbm
Rbm
1 year ago
Reply to  MarkraD
Yeah. I thought the court weighed in on citizen united.
I will vote for anyone who wants to reel in money in politics.
TexasTim65
TexasTim65
1 year ago
Are there any cases on the docket that are coming up that would be ruling on deregulation? If there are no such cases then the court will not be ruling on deregulating anything.
Things would have to get a LOT worse for secession to ever seriously be considered. Right now things are actually quite good in the USA relative to the rest of the world. I’d expect the EU to dissolve long before secession ever happened here.
vanderlyn
vanderlyn
1 year ago
Reply to  TexasTim65
the EU has only a 1% at their federal level. it’s like amerika was pre us civil war. there is nothing there to break up. we are gonna bust up as we have been the past decade.
KS Farm Boy
KS Farm Boy
1 year ago
Reply to  TexasTim65
What do you think is here to prevent a whole lot of de-regulation cases?
Casual_Observer2020
Casual_Observer2020
1 year ago
Reply to  TexasTim65
Cases are being pushed up to the court every year. Imo conservatives have found the goose that lays the golden egg and are essentially bringing cases that will only result in victory. They have found what the court will accept via articles written by conservative members and use those to present cases that have a high chance of victory. Deregulation is going to be the theme in 2023 imo from the cases I’ve seen now that Roe has been overturned. Conservatives will tilt
the laws of the country back so that they don’t lose control of the system. It has always been this way as the country swings between pendulums for decades. Until there is economic destitution the pendulum won’t swing back. That will take the better part of the next 20 years imo but I think this time around states will go their own way and America will shrink on the map.
Zardoz
Zardoz
1 year ago
Good. The United States of Kookistan needs to gtfo.
Rbm
Rbm
1 year ago

It seems to me the whole secession thing is something politicians use to motivate the far right. Just like election fraud and you see where that has got them. Imo the whole idea is over blown. If it came down to it its still in the majority of peoples interest to stay united. But who knows in these crazy times.

vanderlyn
vanderlyn
1 year ago
USSR was the last world wide empire to secede into their old states. French and British and Spanish Portuguese, only gave up their colonies in 1970s and 80s. africa. amerika is more nullified at state level against FEDS since 1860. CA nullified and ignored the DEA over 25 years ago, now. with weed. TX going one way, CA and NY going another………….we will be a thousand times better off with 50 states and only share a navy and highways etc…………..like it was pre 1860. it will be a snore i think. most people have already resigned themselves to caring about their state laws mostly. the FEDs are ovder stretched from ukraine to poland to okinawa…………….the kids don’t care. i don’t care. amerikan empire was very evil past 50 years. millions slaughtered for nothing but coca cola and exxon and israel and bankers and raytheon………………just like USSR bankrupted themselves on world wide domination attempt.
Nodak1
Nodak1
1 year ago
Trump-AutoCratic? OMG wake up !!!!
Zardoz
Zardoz
1 year ago
Reply to  Nodak1
Oh, sweet trumpling, you’ll be so sad when he loses again… but fear not! The fine folks and Fox will tell you lies about his loss that will make you feel special and persecuted, and keep you tuned in to those magic pillow and penis pill ads. Your state of righteous indignation and outrage will be maintained until you finally stroke out .
Outrage junkies always end that way.
Rbm
Rbm
1 year ago
Reply to  Zardoz
If find it funny that when someone cast a republican to the curb its called cancel culture. Now that they are trying to cancel trump. Its called moving on.
.
Esclaro
Esclaro
1 year ago
It can’t happen soon enough! Half of Americans want to kill the other half. Literally. MTG had it right when she suggested an amicable divorce (normally I agree with her on nothing!).
Lisa_Hooker
Lisa_Hooker
1 year ago
More likely than succession is a Constitutional amendment that prohibits Republicans from voting.
Salmo Trutta
Salmo Trutta
1 year ago
Powell’s inflation will last longer than Volcker’s. Interest rates have already been deregulated and Powell eliminated reserve requirements.
Some Thoughts About Inflation and the Feds Ability to Control It.pdf (dlthornton.com)
Casual_Observer2020
Casual_Observer2020
1 year ago
Reply to  Salmo Trutta
And wait until the Supreme Court overturns a bunch of regulation and undoes the executive and legislative branches of the government. It will be a repeat of global financial crisis but on steroids. This will all be a repeat of the 1920s and 1930s imo but it is going to last a lot longer and be a lot more painful for more people because the court is in place for the better part of the next 30 years. Deregulation will be at the heart of every economic or business case presented. This will have a huge trickle down effect on the whole economy.
Scooot
Scooot
1 year ago
It’s in Wall Street’s interest to keep dangling the carrot of an approaching terminal rate followed by imminent cuts. Bad news is good etc. They’re salesmen.
No one knows what the terminal rate will be or when. We do know they’re likely to keep hiking while the labour market is tight and inflation is so far above target. We also know the higher rates go and the longer they remain elevated, the more likely they’ll adversely impact the economy and company earnings. Once that process begins and the rot sets in, it’ll probably take a while to reverse it.
Nuddernoitall
Nuddernoitall
1 year ago
“As of February 27, the market expects the terminal interest rate to be about 5.5 percent in July.”
This rate will still not be enough to snuff out sticky inflation. It “may” be enough to keep sticky inflation at status-quo. But, if the FED truly desires their preferred 2% inflation level to reappear, the FED will need to keep hiking certainly beyond 5.5%.
Two percent inflation? How about 2025 … at the earliest.

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