14 Wednesday Dec 2016
Posted | December 14, 2016 10:52:56 | Economics
CME Fedwatch says the Fed Fund Futures show a 95% chance of a hike today. I suggest it’s over 99%. Then what?
Looking ahead here are some charts for December 2016, March 2017, June 2017, and September 2017.
December 2016 Rate Hike Odds
March 2017 Rate Hike Odds
June 2017 Rate Hike Odds
September 2017 Rate Hike Odds
After the meeting we will take a look to see how the odds changed. I doubt the Fed gets in another hike in 2017.
Mike “Mish” Shedlock
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Hmmmmmm……….Hildabeast had a 97% chance of winning POTUS…….based upon historical precedence, I’d say it’s a 50%-50% shot……
I’d take that bet as well.
I’m curious to see how the market reacts to this “sure thing.” Everyone says the current market prices have this rate baked-in. We’ll see.
Mish, where are your new forecasts for GDP growth with a Trump presidency? What about gold? So much has changed and will change. You need to update these forecasts. If a Trump presidency unleashes the energy sector and lowers corporate taxes, GDP might go above 4% and gold will be crushed even more.
Explained in recent articles
Mish, where are your new forecasts for GDP growth with a Trump presidency? What about gold? So much has changed and will change. You need to update these forecasts. If a Trump presidency unleashes the energy sector and lowers corporate taxes, GDP might go above 4% and gold will be crushed even more.
GDP headed for toilet IMO
Interest rates will hurt housing, autos topping, dollar hurts exports
If you turn out to be right (about GDP heading down toilet) — it will completely and totally discredit Bernanke / Yellen’s short sighted policies.
If you turn out to be right about GDP, the fall of Bernanke / Yellen will take the Fed down with it.
If you turn out to be right about GDP — rates will go higher because the geopolitical risk involved in such a power shift (from an inept and arrogant central bank to ???? )
The Fed made a lot of really bad decisions over the last 10-15 years…. there is a price for that, and it has not been paid yet
If corporate taxes are lowered and the energy sector is unleashed, there is no way GDP tanks. We could see 4% or more next year. That doesn’t mean the stock market is undervalued, but GDP growth is primed to go up under a Trump presidency and Republican Congress.
You are in for a big surprise.
… agree with your base scenario (that Main street rises even if Wall Street doesn’t), but:
Its all predicated on the assumption that Trump repealing Obamacare and doing so quickly. Will the failures in Congress (who exempted themselves upon reading Obamacare) go along with repeal? (and it likely means that something else, we don’t know what, replaces it)
Small and medium businesses are seeing their markets grow around 3% now (aka GDP growth). Lets assume Trump does whatever to get GDP growing 5-6%. Meanwhile, healthcare costs are going to continue growing 30% or more?
Trump has said he will repeal Obamacare, but its not a done deal unless / until it happens.
Its possible Congress, which is exempt and both parties rather oblivious to reality, drags their feet — which would leave Main Street drowning in costs.
If Congress remains aloof and out of touch… Obamacare costs will devastate the economy, while the GAO expects medicare (and retiring baby boomers) to be bankrupt in 2018.
Meanwhile the debt situation, at both government and consumer levels, is reaching a boiling point. Its not that the inept Fed can’t keep printing currency, its that the Fed cannot continue to do so without causing really bad second and third order effects. That is why the Fed is now being forced to raise rates (I seriously doubt a clown like Yellen is raising rates because she wants to).
I think and hope Trump will get the economy turned around, but even assuming he does there will be lots of bumps in the road. Obama / Bush / Clinton spent two decades making a mess; it won’t get fixed overnight
Housing, autos, exports… all stimulated to the max as it is and have nowhere to go but down anyway, hike or no hike. Yellen has been keeping rates down as a favor to Democrats. Until Yellen is replaced, I expect her to hike quarterly since declines can always be blamed on Trump, though she’ll probably skip a June hike as a favor to NAR.
All this stimulation has negatively affected pensions, and 55+ boomers care more about that than housing, autos, and exports now.
Quarter point move baked in. Attention will focus on statement … how hawkish / dovish.
Strongly disagree on Fed statement. No one cares what Yellen thinks anymore. She (and the Fed) are no longer in control. Neither is the ECB or BoJ.
Central banking has failed. Maybe its the institution, maybe its the people currently in it. Which ever the cause, it has failed. Its not a USA based phenomenon, the same things are happening all over the G7.
Whom would you say is in control? Seems to me the ECB is very much in control. Before announcing their bond buying program spreads between the periphery in the EU and bunds were blowing out, now the Italian-german spread has come in some 65% or so in a year and is currently only about 150bp. As far as the BOJ, even with negative rates there is plenty of demand for bonds in the private sector. The Fed has done exactly what they set out to do, inflate asset prices. In this regard they have had spectacular success.
Sure man… the ECB has pronounced the Greek debt crisis to be resolved once and for all (again). Italian banks are imploding. The entire French economy is imploding. Even mighty Deutche Bank, while not imploding, is having serious issues. Sounds like Draghi has everything under control…
The bank of Japan has been manipulating interest rates below inflation for almost 30 years. They have been doing quantitative easing (by some other name, still stinks) for almost as long. Japan has a second rate economy, staggering debt levels and a demographic nightmare looking them square in the eyes. Sounds like they have everything under control too…
Bernanke promised and assured the world in 2007 that the subprime contagion was under control. Do you still believe that rubbish?
If this is your idea of central planners having everything under their control, I would hate to see your version of not in control.
making a bunch of generalized statements does not make it so. You “sky is falling” doom and gloomers have been pronouncing the end of the world for decades and continue to be wrong. The Japanese economy is still the third largest in the world, the demographics of Japan is hardly the fault of the central bank. As Japan issues bonds in a currency they have a monopoly in their “staggering debt levels” mean nothing. What Bernanke said a decade ago has very little to do with fed policy today. The Greek debt crisis is a function of a flawed and broken EU, again, not the fault of the ECB. They are acting within a flawed system. My point is that central bankers have done what they were created to do. be the backstop for the elites. Your problem should be with the architects of the system.
The ECB is a product of the same collapsing EU that you claim is wrecking Greece. Your b.s. economic system isn’t working so now you are putting words in my mouth?
I never claimed the sky was falling, you tried to make a straw man argument because you don’t have anything real to say.
I said the central bank economic model is falling, and it is.
I really don’t know what a “central bank economic model” is. Your first and main point was that central banks had failed. I attempted to point out that they have accomplished what they were created to accomplish. On the rest, i guess we will have to agree to disagree. i think the problem is you are blaming one institution for the failings of the system as a whole. In general, the central banks of the world have done a fairly good job within the rules they have to operate in. I suspect you and I share more opinions in common than otherwise. This discussion just got a bit adversarial, which was not my intent. have a good night.
Total Retail sales (adjusted)
consensus … +0.4%
range of “experts” …+0.1% to +0.6%
actual … +0.1%
BUT would have been negative without downward revision to October.
October initial … $465.914 billion
October revised … $465.135 billion
November initial … $465.513 billion
– I look at one chart and one chart only. And that chart says that the FED WILL raise interest rates. The same chart also tolde me that the FED would raise rates in december 2015.
– My personal opinion is that rates may go a little higher (say 0.75% or 1%) but I expect the FED to lower rates down to (almost) zero again (in say 2 to 6 months).
– But it remains to be seen whether or not this prediction will hold.
They will raise the rate but I expect a mostly dovish statement since they really don’t want the dollar to keep going up and that future hikes will b data dependent, and the weak data today was bullish for the bond market .So if we keep getting soft numbers like today there will b no more moves next year unless Trump is able to pass a big tax with no offset spending cuts.
That’s tax cut!
Would it be interesting if someone wrote a model showing that the Fed is totally irrelevant to where rates are (with exception of QE years)? That the Fed just makes it look like they are setting rates. That the corollary to market predicting 97% chance of Fed move is truly, 97% chance fed moves to keep up with the market.
Is everyone convinced rate valuation is predicated on the Fed? That all bond traders attempt to do is predict Fed actions?
Wonders never cease.
I expected another feigned economic crisis story to make it’s way to the public at the start of the month to preclude a rate hike.
Let’s see what impact this increase has on the markets. Nobody really knows. Floating a canary in a coal mine.
Brace yourselves.
Maybe reported inflation spikes to reflect the real world inflation caused by Obamacare.
Or maybe the market starts demanding positive “real” interest rates to reflect the increased uncertainty caused by the reputational collapse of big central banking (ECB, Fed, BoJ, etc, etc)
There are many scenarios where interest rates climb even with bad economic news
Bernanke / Yellen did horrible things to the US economy, and the price for their arrogance has yet to be paid
My know nothing opinion, rates will rise 2017.
The system has been destabilized to a point (politics+economics) where having a crystal ball to predict the future is as good as anything else.
2017 and beyond – depends on Trump. Can he stay on top of his game? If so, rates will rise to reflect a normal economy. The ‘low rates forever’ forces are on the run.
I noticed that, in the past, the mafia developed Las Vegas because that’s where the money was. Later, they went after pension plans because that’s where the money was. Today, someone – a different and much higher level of organized crime masquerading as a liberal social force of good – noticed central banks are where the money is. They captured economists, the media, and politicians and spent the last eight years feeding off the pig. It’s over now. The people and the vote kicked them out. As long as Trump remains his own man, everyone outside that group will gain.
I liked this insight, which is incredibly accurate. I don’t think they’re on the run yet. They’ve the taste of money and power and will try to corrupt the Trump administration to keep the game going. The only possibility is that the Fed is no longer loyal to the now administration and would like to see the Republican economy dashed on the rocks….why not? Clearly the Fed managed to suppress interest rates to the very last gasp of the Obama administration; providing cheap capital to speculation in bonds and equities, and providing incredibly cheap financing for Obama’s massive expansion of the federal debt. Candidly, I’m more comfortable with an explanation of corruption between Yellen and Obama (and the Democrats and financial industry), than with any “economic” logic to the Fed’s behavior. After all, they’ve managed to destroy the middle class savers who otherwise would have generated new business starts and first time homebuyers.
You are correct that the top of the central banking bubble is over; it was at it’s peak during Greenspan (the three musketeers who saved the world), and held on with Bernanke, the savior. But do not count them out; look at Trump’s choice for secretary of treasury and council of economic advisors.
Hopefully interest rates will return to historical norms.
But then, what are the odds that anything will return to historical norms.