Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Bloomberg Interest Rate Hike Odds Still Wrong; Deflationary Bust Coming

Interest-Rates / US Interest Rates Sep 11, 2015 - 04:53 PM GMT

By: Bloomberg

Interest-Rates

As of September 10, the CME has the of a September hike by the Fed at 24%. Bloomberg says the probability of a move is 28%.


Bloomberg Rate Hike Odds

Bloomberg Rate Hike Odds

CME Fedwatch Odds

CME Fedwatch Odds

Both Models Wrong

What's wrong with both models is they still presume a quarter point hike.

Neither Bloomberg nor the CME allows for the possibility of a Fed hike to precisely 0.25% or to a smaller tighter range.

Given the effective Fed Funds Rate is 0.14% (see upper right of Bloomberg chart), a setting the rate to a flat 0.25% from the current range of 0.00-0.25% (now at 0.14%), would be both a "move" and a "hike".

Tighter Range

The Fed could also use ranges as Bloomberg and CME imply, but target ranges in 1/8 of a point increments rather than 1/4 point increments.

For example the Fed could target a range of 0.25% to 0.375%.

I suspect the odds of a move to a flat 0.25 or a range (0.25% to 0.375%), are far greater than Bloomberg's "probability of a move" set at a mere 28%.

I went over this before, on August 19, in Plotting the Fed's Baby Step 1/8 Point Hikes; Yellen vs. Greenspan "Measured Pace".

I updated my charts today.

Flattening of Rate Hike Expectations

Implied Fed Funs Rate Percent

Using Fed fund futures from CME, I calculated implied interest rates through December 2017. The line in Blue shows what futures implied on August 19. The line in red is from September 10.

Note the flattening of the curve. This has been happening pretty much all year.

The market initially penned in hikes for January. The hikes then shifted to March, then June, then September, and now December by both the Bloomberg and CME models.

Range Watch

Curve Watchers Anonymous is closely watching the implied baby steps in the the Fed fund futures. Incrementally, the hikes appear as follows.

Month Fed Funds Future Rise in Implied Rate
Aug-15 99.863
Sep-15 99.835 0.028
Oct-15 99.805 0.030
Nov-15 99.765 0.040
Dec-15 99.720 0.045
Jan-16 99.685 0.035
Feb-16 99.645 0.040
Mar-16 99.610 0.035
Apr-16 99.560 0.050
May-16 99.520 0.040
Jun-16 99.480 0.040
Jul-16 99.435 0.045
Aug-16 99.385 0.050
Sep-16 99.350 0.035
Oct-16 99.295 0.055
Nov-16 99.230 0.065
Dec-16 99.170 0.060
Jan-17 99.135 0.035
Feb-17 99.055 0.080
Mar-17 99.020 0.035
Apr-17 98.970 0.050
May-17 98.915 0.055
Jun-17 98.875 0.040
Jul-17 98.830 0.045
Aug-17 98.780 0.050
Sep-17 98.740 0.040
Oct-17 98.700 0.040
Nov-17 98.650 0.050
Dec-17 98.615 0.035

Baby Steps Plotted

Fed fund futures imply a very slow tightening of 3-6 basis points a month. The only exception is January to February of 2017 where the incremental rise is 8 basis points (0.080 percentage points).

The Fed does not set policy every month. Instead it does so about eight times a year. FOMC dates are not yet set for 2017, but futures imply something like the following.

Fed Rate Hike Expectations Through 2017

Fed Rate Hike Expectations Through 2017

Yellen vs. Greenspan

  1. The above market expectations are clearly similar to Greenspan's famous statement: Hikes will be at a "pace that's likely to be measured".
  2. The Yellen expected "pace" is half as often.
  3. The Yellen expected "measure" is half as much.

Just Get On With It!

Via email, Albert Edwards at Society General writes:

The clamour for the Fed not to enact the long-awaited ¼% rate hike next week is growing by the day. Misgivings come not just from reputable mainstream commentators, but now also the World Bank has repeated the IMF's recent words of caution in advising delay. What a load of nonsense! My esteemed colleague Kit Juckes characterises the current consensus thinking as "If the Fed hikes, pestilence, plague and never-ending deflation will follow." Well even those like me who see a deflationary bust awaiting think the Fed should hike next week - because the longer you leave it, the bigger the financial market excesses become, and the bigger the risk of financial dislocation and global recession ensuing. Have we learned nothing from the 2008 Great Recession? Just get on with it!

Exactly!

A deflationary bust is coming and there is nothing the Fed or any central bankers can do about it.

And when the bubble busts, Paul Krugman, Larry Summers, the World Bank, and Christine Lagarde at the IMF will all be singing the "I told you so" tune.

The irony is Krugman, Summers, the World Bank and the IMF are all wrong. The seeds of the upcoming deflationary bust were planted, watered, and over-fertilized by central bankers everywhere, all in the asinine name of "price stability" and deflation fighting.

For further discussion on the sheer ridiculousness of price stability policy, see Cross-Border Deflation: US Export Prices Collapse Most Since July 2009; How Damaging is Price Deflation?

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2015 Mike Shedlock, All Rights Reserved.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Mike Shedlock Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in