The market is increasingly convinced the Fed will hike in June, even as the economic data sinks.
CME Fedwatch shows a 67.4% chance of a rate hike in June, up from a week ago.
This is despite weakening economic reports today including flat consumer spending, negative consumer spending revisions, and falling prices (if one accepts the PCE price index) which the Fed does.
te for March consumer spending was a modest 0.1%, yet despite a negative revision in February from 0.1% to 0.00%, consumer spending could not meet the estimate.
Highlights
Based on the consumer and based on inflation, FOMC members won’t be feeling much pressure to raise rates at least not any time soon. Consumer spending was unchanged in March, even weaker than Econoday’s 0.1 percent consensus. More startling is the weakest showing in 16-1/2 years for core PCE prices which fell 0.1 percent to take down the year-on-year rate by a sizable 2 tenths to 1.6 percent.
Income is also disappointing, up only 0.2 percent with the wages & salaries component posting a very weak 0.1 percent rise. Consumers nevertheless managed to move money into the bank as the savings rate rose 2 tenths to 5.9 percent (which is another factor behind the weak spending).
The core PCE index is the key inflation gauge for the FOMC and prior to this report members were expressing confidence that it was stable and generally headed toward their 2 percent target. And overall prices which moved above target in February are now back below target, falling a monthly 0.2 percent with the year-on-year rate down a steep 3 tenths to 1.8 percent. First-quarter economic data proved surprisingly weak even by first-quarter standards. The economy has catching up to do.
Fed Concerned Over Bubbles?
If the market believes the Fed will hike, the Fed is nearly guaranteed to hike.
Is the Fed finally concerned about the bubbles it has blown?
Mike “Mish” Shedlock
I just got through reading a post of yours about sub-prime and deterioration finally hitting portfolios. Now I’m reading about flat consumer spending. Seems reasonable to conclude that consumer spending can’t increase without more debt being taken on, especially when incomes are not rising nor likely to.
– Nope. When I look at the 3 month T-bill rate then I am NOT convinced that the FED will hike rates. The odds for a rate hike are actually shrinking slightly.
The sextuple was a winner!
This report had revisions for January and February Personal income, disposable personal income, and personal consumption expenditure – all revised negatively.
“If the market believes the Fed will hike, the Fed is nearly guaranteed to hike.”
I would tend to agree. IMO, nothing else matters for the Fed. Anyway it will be confirmed once these guys at the Fed start flapping their mouths, which they will as we get nearer to June. I will be keenly watching for Dudley and Bullard.
I hope they keep raising rates and finally drive a stake into the heart of the vampire stock market.
The Fed will most likely implement one more rate hike this year, though I wouldn’t bet on when. The economy is growing too slowly to hike more than that. They won’t hike at all if growth is closer to 1%, but will hike if they can get to 2%.
As long as the unemployment rate is moving in the right direction, the Fed will hike. The Fed believes that better unemployment rates will eventually drive inflation. And they will want to cut that in the bud.
They don’t understand that it is not 1975 any longer.
You might be right. However, they have been ignoring the actual unemployment rate numbers for quite some time, and looking more closely at skilled labor shortages and the subsequent increase in wages for those skilled laborers. I still only expect one more Fed increase this year..
I begin with the premise that the Fed is a corrupt organization and Yellen is a political beast. She will raise interest rates and contract the money supply in order to damage the economy and make Trump look bad.
Wonder if some of the game theoreticians at the Fed, are consciously feeding up under the “have to get a mortgage now, before rates go up” hysteria for as long as they can. Figuring they can, short term, get increased loan demand, despite rates fundamentally going the “wrong” way for borrowers.