Rate hike odds surged as high as 80% following comments today from two Fed presidents. The odds are 62% as I am typing now. Let’s investigate the spike.
The Financial Times reports Market Odds of March Rise in US Interest Rates Hit 80%.
The market odds of a March increase in US interest rates shot up to 80 percent on Tuesday as Federal Reserve policymakers insisted they did not need to see Republican tax reforms and other policies before they act.
William Dudley, influential head of the New York Federal Reserve, said that the prospects for adding to the December 2016 rate increase had become “a lot more compelling”.
“It seems to me that most of the data we’ve seen over the last couple months is very much consistent with the economy continuing to grow at an above-trend pace, job gains remain pretty sturdy, inflation has actually drifted up a little bit as energy prices have increased,” he said in an interview with CNN.
Mr. Dudley is typically considered to be a dove on the Fed’s policy-setting board, so his remarks were “significant”, according to Thomas Simons, a money market economist at Jefferies, the investment bank.
“For Dudley, this is as hawkish and specific as you’re going to get,” he said
John Williams, president of the San Francisco Fed, said on Tuesday that a move would be “very much on the table for serious consideration” in March.
Parking the question of higher rates until June, on the other hand, would mean another half-year will have passed since the last rate rise in spite of surprisingly strong economic data.
New Standard for “Surprisingly Strong” Economy
I have no idea what “surprisingly strong” economic data they are referring to given that 4th quarter GDP is 1.9%, and the Atlanta Fed GDPNow model suggests 2.5% for first quarter.
Is 2% the new standard for”surprisingly strong” growth?
Yields Jump
Yields jumped across the board, but rates on the short end rose more than the 30-year long bond.
One-Year Treasuries
Two-Year Treasuries
30-Year Long Bond
Rate Jumps
- One-Year Yield +12 Basis Points
- Two-Year Yield +8 Basis Points
- Thirty-Year yield +5 Basis Points
Rate Hike Odds
If the Fed hikes, and I am not convinced they will, we will quickly learn more about the surprisingly strong economy.
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Those who think rate hikes are necessarily bad for gold need to consider Rate Hike Cycles vs. the US Dollar: Rate Hikes Bad for Gold?
Mike “Mish” Shedlock
Went out for a hike today in the California desert and treasury yields spike the moment I leave. Will cover Trump’s speech in just a bit
I think the Fed was expecting 12% unemployment and Dow at 12,000 after a month with Trump, so to them, the economy is “unexpectedly” strong. Since they hate Trump and want 12-25% unemployment on his watch, expect rates to rise at every opportunity unless/until Trump has named 4 out of 7 voting members.
Hi Ray, I could not copy it to attach, so log in and see their announcement. Also take note of PEK and their move today and BRB So far the certainties I gave are moving nicely don’t leave it too late if you want some.
Re Sam.
‘Is 2% the new standard for”surprisingly strong” growth?’
Yes, it is.
“…surprisingly strong” ?
“…grow at above-trend pace” ?
this is pure state propaganda. there is zero evidence or data to support words like “strong” or “above-trend” or even “growth”!
any rate hikes this year will be reversed/taken back w/in 12 months or less… book it.
It never did make any sense for bankers to confiscate people’s stuff, then lend their stuff back to them. Best if bankers just stop printing divers weights and measures.
Probably odds went down to 62% from 80% due to Bullard. Probably Bullard wanted to cool things down when the other two made it appear a sure thing. It is no longer about the economy. It is all about what these guys, who never can see an oncoming train wreck even if their life depends on it, say.
“It is all about what these guys, who never can see an oncoming train wreck even if their life depends on it”
Their garbage economic theory produces two things that governments and their actual owners love – the myth that one can barrow one’s way to prosperity allowing politicians to always promise more than they can pay for with tax receipts and gradual and legal income redistribution to the top. This is why this situation won’t ever change no matter how many times their theories are PROVEN to be total garbage.
WordPress sucks. “Borrow” instead of “barrow.”
There may be a rate hike or two, but rates will never return to normal unless it’s preceded by a massive amount of defaults.
Welcome to the “New Normal”; where nothing works, and THAT’s the way it’s SUPPOSED to work.