There’s a 94 Percent Chance of a Rate Hike on May 3, Then What?

May 2, 2023

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1:05 pm

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50 comments

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Economics

CME Fedwatch data, weighted average calculation by Mish.

A hike on May 2 is a given. The market perceives a 30.1 percent chance of a one more hike in June.

The light green bars show the panic around the bank failures in May. The market has since put more rate hikes back on the table as noted by the bars for April 11 and May 2.

Yet the weighted average expectation for December is now 4.65 percent vs 5.18 percent for June. That’s about a half point of cuts vs the June terminal rate.

March 2024

The market is expecting the Fed will cut rates to about 4.18 percent by March of 2024.

Believe that?

The Fed Admits a Mistake in Collapse of SVB, Seeks More Power Anyway

In case you missed it, please note The Fed Admits a Mistake in Collapse of SVB, Seeks More Power Anyway

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whirlaway

2 years ago

All bank failures will be addressed by the Fed’s “print and bailout” mechanism. Meanwhile, the rate hikes will keep happening until the resurgent labor movement is completely crushed.

dtj

2 years ago

There won’t be a rate hike. Yip yappin’ Yellen dropped that hint a couple weeks ago, but apparently nobody was listening.

I don’t blame anyone for not listening to her after her “let me be clear…there will be no bailouts” speech.

Columbo

2 years ago

After this hike, I think the Fed will hold it going forward unless the unemployment rises to 375k or the Stock Market plunges for whatever reason.

Thetenyear

2 years ago

Cutting one percentage point in a year feels like nothing especially after hiking by five in one year. Would a one point cut even make a difference?

KidHorn

2 years ago

Reply to Thetenyear

Paying 20% less interest. I would guess yes. It will make a difference.

Lisa_Hooker

2 years ago

Reply to Thetenyear

Yes, about $500.00 per month of disposable income.

jhrodd

2 years ago

Reply to Lisa_Hooker

Exactly, I would also have $500 less disposable income if savings account rates dropped by 1%. I’m already being stretched every which way by inflation, a $500 income cut won’t help.

8dots

2 years ago

From banking crisis to sovereign crisis.

Rbm

2 years ago

In my opinion raising rates is just gonna hurt the poor but not the upper middle class and up. Boomers and late boomers are passing. This generation benefited from post ww2 growth / great depression saving mentality and first generation with 401 ks etc. their even sucking ss dry. Anyway their passing that wealth to the gen x kids which leave them with generational wealth to keep life comfortable. So it will be longer before demand drops enough to affect prices. Imo

MPO45v2

2 years ago

Regional banks getting slaughtered, two trading halts: PacWest & Western Alliance…

https://finance.yahoo.com/news/pacwest-western-alliance-crash-as-regional-bank-fears-continue-to-shake-markets-151815103.html

Somebody call Jamie Dimon and tell him it’s not over!

TexasTim65

2 years ago

Reply to MPO45v2

Jamie Dimon is likely rubbing his hands like Mr Burns right now.

Makes sense that regional banks are going to get slaughtered. Especially ones holding a lot of treasuries and bonds that are paying low rates. Anyone who didn’t dump their holdings when the Fed first signaled they were going to raise rates is a dead man walking.

MPO45v2

2 years ago

Reply to TexasTim65

So eventually we’ll be down to two banks: JP Morgan and Bank of America? Just like AT&T or Comcast for most of the country or Colgate/Crest or Apple/Windows or IOS/Android. It always comes down to two doesn’t it.

And yeah I know there are others but their market share is so small it’s irrelevant.

Jmurr

2 years ago

Reply to MPO45v2

Bernie Sanders said we didn’t need that many choices. I guess socialism works, in limiting choice that is.

KidHorn

2 years ago

Reply to MPO45v2

I think the cutoff will be something like Capital One size. Anything that size will be bailed at all costs. There will be at least 8 banks that remain.

Doug78

2 years ago

Reply to TexasTim65

The belief in the Fed Put was so strong that many money managers refused to believe that the rules had changed and expected and some still expect the Fed to lower rates as soon as unemployment goes up. The Fed is putting a stake through the heart of that belief.

lamlawindy

2 years ago

Reply to MPO45v2

Hmmm…any solid regional bank stocks selling at bargain prices now? I usually won’t touch financials at all, but when the market over-reacts…

MPO45v2

2 years ago

Reply to lamlawindy

I would stay away from all banks, even the big ones, they may end up all getting nationalized when it’s all said and done. We are at the start of the dominoes falling not near the end.

Shrp-Blond

2 years ago

Reply to MPO45v2

We have four TBTF banks: JPMorgan Chase, B of A, Citigroup, and Wells Fargo. Since each of these are too big to fail, it’s hard to believe we would ever get down to two.

Bam_Man

2 years ago

Then we get a truly F-ugly employment report two days later and that’s all folks – no more rate hikes.

Nuddernoitall

2 years ago

Up a quarter on May 3 and then what? The Fed will pause …but for long?

The answer is, as long as the Fed can stomach inflation running at more than 4 to 5 percent for the rest of the year. That sticky and unchecked inflation may be the lesser of two (or many more) evils for (suddenly spineless) future Fed policies.

Don’t count on a cut in this calendar year, however. That’s a dead-on-arrival Fed option. A cut for 2024 which is an election year? Count on it.

MPO45v2

2 years ago

The market is expecting the Fed will cut rates to about 4.18 percent by March of 2024. Believe that?

So the question that never gets asked around here is what should the truly-free-floating-unadulterated-free-market interest rate be? If the market expects the rate to be 4.18% and if we didn’t have the Fed would this be the true free rate? Or is it only that because we have a fed?

With no fed, what should the rate be in this environment?

dbannist

2 years ago

Reply to MPO45v2

I suspect higher still.Interest rates are not yet normalized and we are all still use to absurdly low rates.

Mish

2 years ago

Reply to MPO45v2

“So the question that never gets asked around here is what should the truly-free-floating-unadulterated-free-market interest rate be?”

It is unknowable

Doug78

2 years ago

Reply to Mish

There never was and never will be a free market in interest rates. Throughout history there has always been a mismatch between supply of and demand for credit.

Lisa_Hooker

2 years ago

Reply to Doug78

Nah.

There’s gotta be a dynamic stochastic equilibrium, don’cha know.

Doug78

2 years ago

Reply to Lisa_Hooker

Gee. I forgot that! DSGE is the perfect spherical cow that we all use in our economic projections. It, of course, completely invalidates my former remarks. Consider me chastised Dear Lady.

Maximus_Minimus

2 years ago

Reply to Mish

It might be unknowable, but limiting the power of money printers to maintain stable currency would go a long way to finding that rate.

radar

2 years ago

Reply to MPO45v2

My guess is we would not be anywhere close to where we are today if the free market had been determining rates all along.

Bam_Man

2 years ago

Reply to MPO45v2

The economy is already in recession which will become obvious very shortly.

Fed funds will be nowhere near 4.18% in March of 2024.

Probably at least 100 bps lower than that.

Christoball

2 years ago

Reply to Bam_Man

I agree, many industries have been in recession for months.

Christoball

2 years ago

Reply to Christoball

I misspoke. I agree with the recession part, but i do not think rates will decrease until inflation is tamed to targeted 2%. Remember inflation is compound not simple. Even if a 2% target is achieved it would be 2% higher than already exorbitant prices.

KidHorn

2 years ago

Reply to MPO45v2

The price would be set the same as every other price. Depends on the supply and demand of cash.

TexasTim65

2 years ago

Reply to MPO45v2

In the old days (prior to the rise of the internet) the rate would have been set locally by local conditions since you would have had no choice but to borrow locally from the local bank.

If there was no Fed, the rate would be set by other countries ‘Fed’ equivalent. For example Japan for years had much lower rates that led to the Yen carry trade (borrow cheap in Japan, lend that money in the US for a higher rate and pocket the difference) and US Banks would still attempt to do this. This assumes that there would still be a law against usury.

Christoball

2 years ago

Reply to TexasTim65

It is said that at one point a few Japanese car manufactures were making more money on Carry Trade than by selling cars.

worleyeoe

2 years ago

Reply to MPO45v2

Bullard predicted a 7% terminal FFR back in December. That sounds about right to me.

Housing has to tank, like really tank. We can’t come out the back end of the next 24-36 months or longer of stagflation without housing being a lot more affordable. Almost nobody who hasn’t owned a home and is below the age of 35 can afford a home. And more than anything, I hope all those investors who bought up 30%+ of the housing in metro ATL over the next two years get crushed.

8dots

2 years ago

Since the early 1970’s M2 had no dents. There was one flatbed in the early 90’s. In 2020 M2 went vertically up, despite recessions. The Fed can “print” money. If Biden needs $5T the Fed will click credit to the gov account in the Fed. The R don’t get it. We can print forever, owning the debt to ourselves, because US was and is #1. // Option #2 : no more”money tsunami” An Anti tsunami. M2 is a system control with a positive feedback loop. In 2020 US was comatose until we know what we don’t. The Fed raided in our banks account. We got stimulus checks, unemployment checks and deposited in our banks. We didn’t pay rent/mortgages/student loans. We couldn’t travel, eat in restaurants, spend on dentist, be in NFL games. The banks sent the money to the Fed. The Fed sent the money to the gov to finance more debt, a mountain of debt, and send us more stimulus, unemployment checks, PPP loans… M2 went vertically up. The system control with it’s positive feedback loop created a wall of cash, “money tsunami” , but in 2023 the money is gone. No Fed printing. A broken system control ==> no $5T for Biden.

KidHorn

2 years ago

Reply to 8dots

The FED doesn’t give money to the government. They buy gov’t issued bonds in the open market. Although sometimes they instruct a primary dealer to buy specific coupons that they will then promptly pay more for.

8dots

2 years ago

Reply to KidHorn

irrelevant.

Lisa_Hooker

2 years ago

Reply to 8dots

hippopotamus

HippyDippy

2 years ago

Rates will increase until the FED breaks the economy it created. And of course, the FED will totally ignore all the problems it, and the rest of the government branches (Biden, Congress) have and continue to create.

KidHorn

2 years ago

Reply to HippyDippy

If history is a guide, that’s exactly what will happen. Once the dow has a few thousand+ point drops, there will be an emergency 1 point rate cut, soon followed by others.

Siliconguy

2 years ago

Reply to KidHorn

That’s been the pattern. Bernanke caving in during the “taper tantrum” really had bad effects.

Zardoz

2 years ago

I believe it. I also believe in the Easter Bunny, Leprechauns, and that I’ll be reimbursed for the social security money they’ve been taking from me for 40 years.

Everything is awesome!

KidHorn

2 years ago

Reply to Zardoz

We’ll all get our social security checks. Problem is our monthly payment will only cover a week of expenses.

dbannist

2 years ago

Reply to KidHorn

Inflation will absolutely erode the value of a SS check.

It has to in order to keep it solvent. I do predict, however, that there will also be higher taxes in our future to help alleviate the SS problem. When people are starving they tend to get angry and be heard.

Lisa_Hooker

2 years ago

Reply to dbannist

They will curtail sales of center fire ammunition.

Zardoz

2 years ago

Reply to KidHorn

Each check will be redeemable for 3 cans of Tender Vittles, on one FancyFeast, for special occasions.

Lisa_Hooker

2 years ago

Reply to KidHorn

You will invest your Social Security check in lottery tickets and be happy.

vanderlyn

2 years ago

Reply to KidHorn

a week? try a day.

dbannist

2 years ago

Personally, all these rate hikes have been a boon to me.I have a business that regularly requires the purchase of over 200k in inventory that I sell immediately. Because I use a credit card to purchase the inventory and get the 200k in cash for selling my inventory to a 3rd party (I’m a middle man), I get to park 200k in my Money Market account for 1.5 months before the bill is due.

When you have 200k in a MM account earning 4% for 1.5 months and can do this every month (which sometimes means I overlap the 200k and have 400k in an account for 2 weeks), you get an extra 750.00 bucks a month for free.

While it’s not enough to retire off of, it’s a nice bonus. As a non-debtor, this represents a free cash flow that doesn’t inhibit my money at all, since I’m using the credit cards money.

I cannot control interest rates, but I can adjust to profit off of it. I used to pay my credit card bill weekly. No more! I pay it off at the last possible day. Having a credit line on a card with 600k in credit available also helps a great deal.

When you can’t control the direction the economy is headed find a way to profit off of it.

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There’s a 94 Percent Chance of a Rate Hike on May 3, Then What?

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