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Rate Hike Odds Surge As GDP Forecasts Collapse – Ep. 232

  • According to Goldman Sachs, the odds of a Fed rate hike coming up at the March meeting, which is less than 2 weeks away is now 95%
  • It was 90% before Yellen spoke, that was looking at the Fed Fund futures, in fact the probability of a rate hike had been rising all week based on speeches of a number of Fed officials
  • Everyone indicating that a rate hike was coming soon
  • Nobody actually said how soon
  • But they kept talking about why raising interest rates would be appropriate
  • Why they didn’t want to wait too long
  • But of course they always reiterate that they want to proceed slowly
  • And of course, that they are data dependent
  • Meaning that in order to deliver these rate hikes that they claim would be appropriate
  • They will be slowly applied over some abstract period of time and
  • The economy has to evolve according to their expectations
  • Which probably is not going to happen
  • But nonetheless, when Janet Yellen spoke, this was the last opportunity that a Fed official had to kind of dial back those expectations
  • If Yellen didn’t like the fact that the markets were 90% sure of a March rate hike
  • She had the opportunity to dial that back in her rhetoric
  • And she did not
  • She allowed the markets to continue to price in a rate hike in the March meeting
  • And that is why, now, the odds went from 90% to 95%, which is virtually a lock
  • Which means that barring any huge drop in the stock market between now and the March meeting
  • That hike’s probably going to come
  • Because I think that the reason the Fed feels confident to raise rates is that the Dow is at 21,000!
  • Just like it felt confident to raise interest rates the first time in December of 2015 because the markets were giving a false signal that rate hikes were OK
  • And, of course after the rates were hiked, the market thought about it again, and it dumped
  • And then we had the worst January in the history of Janaries
  • And the Fed waited until the following December to raise rates again