Will the Fed Hike Anytime Soon?
Let's have a quick Fed recap:
-Fed Funds Futures are now pricing in a 100% chance that the Fed raises rates by a total of 50 bps by the October meeting.
-Futures place a 24% chance of a 75bps increase by October.
-Futures By the January 2009 meeting, we have a 98% chance that Fed Funds rate will be raised by a total of 100 bps to 3%.
Is the Fed likely to be raising rates in this environment? Will we see a new tightening cycle? Or, is the Fed merely jawboning in response to a more Hawkish ECB?
~~~
What say ye?
Thursday, June 12, 2008 | 08:00 PM | Permalink
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Jawboning - 1 vote
Posted by: rj | Jun 12, 2008 8:04:22 PM
Fed Schmed... bond market will do it for them
Look at the 10 year...today alone. Jumbo's are approaching 7.5% and even the "buy at all costs" Fannie and Freddie are at 6.3X%
Totally out of the Fed's control.
To quote Estragon "Hu's your daddy"
That's who is and will raise rates.
Ciao
MS
Posted by: michael schumacher | Jun 12, 2008 8:05:28 PM
And Samson said, With the jawbone of an ass, heaps upon heaps, with the jaw of an ass have I slain a thousand men.
"...or a thousand HELOCS, give or take"
Judges 15:16
Posted by: brion | Jun 12, 2008 8:06:41 PM
The FED does not set rates, the market does, this yield hike is forcing profit taking on winning positions from TRUE inflation noise. Barry I know you know this ! Whats interesting is the JGB 10yr yield, that goes up, borrowing to buy stocks and commodities gets more costly. This is a trend that can create a STOCK MARKET CRASH !
Posted by: Ian in NZ | Jun 12, 2008 8:12:07 PM
I'm with MS on this..The FED merely has a -remnant of the-illusion- of -control here.....
I've got my Glock and my popcorn BEnnie.....I'm ready for any move you care to make.
Posted by: brion | Jun 12, 2008 8:15:21 PM
Unless Ben Bernanke, who knowingly bailed out the housing buble with inflation, turned into Paul Volcker overnight then there is no way in hell he is going to raise rates anytime (years) soon.
Posted by: Owner Earnings | Jun 12, 2008 8:16:50 PM
Bene and the boys need one thing...a steep yield curve so their brethren on Wall St can maintain high margins and stay solvent...the steeper the curve gets the better for them...no way they tighten any time soon...no way
Posted by: jrfar005 | Jun 12, 2008 8:22:42 PM
Jawboning, but there's no way I'd go long bonds anyway, because there's a chance that if the shit REALLY hits the fan that the Fed will lose all control over long term rates.
Posted by: tranchefoot | Jun 12, 2008 8:26:48 PM
Strategy brilliant to date to increase spread between Fed funds rate and 10 yr rate. To actually raise would reverse that trend: therefore it's jawboning.
Posted by: Solodoc1 | Jun 12, 2008 8:28:23 PM
Nothing happens before the election. Afterwards, it depends on who wins. In this crazy time, politics rules economics--and that's why regulators have taken a long vacation--and BB pimps for investment banks. The better question is--Can anything prevent a meltdown?
Posted by: Mel | Jun 12, 2008 8:33:30 PM
does this mean the ARMS that a roll a year from now might go up even higher? damned if they do, damned if they don't
Posted by: gregh | Jun 12, 2008 8:36:47 PM
Rates go up this month when his hand is forced by the asian banks .
Posted by: Chris Noyes | Jun 12, 2008 8:39:06 PM
The Fed is going to raise rates in the same way the Treasury believes in the strong dollar....
Posted by: HCF | Jun 12, 2008 8:54:02 PM
The Fed will be forced to raise rates to stem the inflation is has already started.
Posted by: Paul Griffith | Jun 12, 2008 8:57:44 PM
With much jawboning about the lowered risk of economic slowdown to cover their tracks, the Fed will do whatever the bond market tells them to do.
The one thing the Fed cannot do is to monetize to defend the target.
Posted by: Winston Munn | Jun 12, 2008 9:02:21 PM
who gives a $#@$#%#$!!!, its the chinese
and the foreigners that determine the fate of the fiat currency
Posted by: rickrude | Jun 12, 2008 9:04:44 PM
Is this same futures market that was pricing in Fed Funds at 1% by now back in March. The Fed is a follower, not a leader. The foreign holders of UST are busy giving them back to Bennie and the inflation Jets and the only way to stop the reversal of bond flows is to talk up inflation hawk. Rates up equals financials down hard.
Posted by: Polar Bear | Jun 12, 2008 9:06:25 PM
On a tangential note...
How is it that most of the talking heads are suddenly so "hawkish"? After 325 basis pts. of cuts in such a short time, the mere possibility of raising by 25 bps in the SECOND half of the year is hawkish? WTF?
Unfortunately, unlike our favorite BR, most of the commentators on CNBC, etc. are mere cheerleaders without well reasoned arguments (Buy stocks now! Now is the best time! There is NEVER a bad time!). Incidentally, Barry, can you make some sort of bet with Jerry Bowyer or Dennis Kneale or something where when you win it, they have to come on K&C with a pink skirt and pom-poms? That would literally be the highlight of my life.
I love CNBC, but most of time, I take it about as seriously as Comedy Central
Posted by: HCF | Jun 12, 2008 9:11:07 PM
I say that this policy of the Fed has nothing "economic" per se. Sorry to ask, but how can the Federal Reserve curb inflation coming from increased health care prices, increased education prices, increased oil prices, and increased oil prices? I suggest sending Federal Reserve officials to hospitals, schools, the middle east and, if all of that fails, send them back to farms.
Since liberalization and the bust of the unions in the early 80s, inflation disappeared.
If their idea is to curb "imported inflation" by reevaluating the Dollar --good luck. They have millions of investors ready to bet against it.
If Bernanke has so far avoided a recession, he won't curb inflation --unless maybe if he brings interest rates in the double digits territory.
But wait... isn't Bernanke known for "inflation targeting"? Ha!
Posted by: Giovannoni | Jun 12, 2008 9:15:38 PM
Jawboning. A desperate attempt to break the long oil trade and restore reason to the energy markets in response to demand destruction, before we begin yet another round of dollar depreciation as some truly recessionary statistics start rolling in. Oh... they already have, as you pointed out Barry, take away the smoke and mirrors of the BLS and we are there.
Posted by: leftback | Jun 12, 2008 9:16:05 PM
The Fed is largely jawboning. Moreover, the Fed, except for the discount rate and attempting to manage rates through open market operations, it doesn't control rates. The markets do and right now the Fed is well behind the market. The Fed is the tail, the markets are the dog. Sure, the Fed can tell the market which direction it would like to see rates move, but that's it. A deluge of treasuries hitting the market is what is pushing up rates. This is a long term trend dependent upon foreign central banks taking up excess supply. When they do not, prices plummet, rates rise. Lately, foreign central banks have been taking materially less. The Fed can do little in this regard.
Posted by: stuart | Jun 12, 2008 9:23:19 PM
The fed will try to sabotage Obama. One way or another.
Posted by: Bob A | Jun 12, 2008 9:27:30 PM
where is this information coming from? please let me know.
Posted by: Xavier | Jun 12, 2008 9:28:52 PM
Ben's acting like he's got a bigger you-know-what than Trichet. But we here all know who's impotent and who's not.
Posted by: Mike in NOLA | Jun 12, 2008 9:35:27 PM
if rates increase it will not be avolker like increase.
So what if rates go up by 25bps? What does it change? Not housing, not auto,s and not the banks who are being helped by a monopoly like game between father and children where the father bails out the kids to keep them going.
There is no easy solution to the 26 years of prosperity so either we continue the current path till it all falls apart, or someone says "enough"
Posted by: Hal | Jun 12, 2008 9:46:13 PM
