Five Reasons Fed Won’t Hike Even Twice In 2017
On December 14, right before the FOMC decision I took a snapshot of rate hike odds and posted them in Fed Hikes Today, Then What?
Today, we compare the before vs. the after, the latter is from Friday, December 16.
Following that comparison, I present my reasons why all the expected hikes are not coming.
March 2017 Rate Hike Odds Before
June 2017 Rate Hike Odds Before
September 2017 Rate Hike Odds Before
March 2017 Rate Hike Odds After
June 2017 Rate Hike Odds After
September 2017 Rate Hike Odds After
Market Expectations Before and After Synopsis
- March: The market did not expect a hike at the March meeting either before or after the FOMC Meeting. Nonetheless, the odds of March hike rose from 15.8% to 25.3%.
- June: The odds of at least one hike by June rose from 54% to 75.3%. Odds of two or more hikes rose from 11.5% to 24.9%
- September: The odds of at least one hike by September rose from 70.2% to 89.1%. Odds of two or more hikes rose from 28.5% to 55.5%. Odds of three or more hikes rose from 6.2% to 20.2%.
This is a much more aggressive assessment that before the FOMC meeting.
Mish Expectation
I have been betting against rate hike consensus opinion for years. The Fed managed to get in one hike in each of the last two years, both in December, vs. Fed assessments of 3-4 hikes each year.
For the third straight year, rate hike expectations for the coming year soared in December, only to quickly die at the beginning of the next year. Expect more of the same.
Five Reasons Fed Won’t Hike Twice in 2017
- Housing looks weak, and mortgage rates have soared. See Housing Starts Dive 18.7 Percent: Mortgage Rates Soar.
- The New York Fed assessment is 4th Quarter GDP will be 1.8%. If so, 2016 GDP will be on the order of 1.6%. Three hikes? Really? See Nowcast, GDPNow Diverge Widely Again: What Happened?
- The strengthening US dollar is hurting exports. See Trade Deficit Widens, Exports Decline 1.8%, Imports Rise 1.3%: Two Piece Puzzle
- Trump’s policies risk a major trade war. My baseline scenario is Global Trade War Baked in the Cake: Boeing Faces China’s Wrath. Also note China Tells Trump “Nothing to Discuss” If US Drops “One China” Policy.
- Retail sales weakened, led by autos. Retail Sales Unexpectedly Dive: Spotlight on Cars and the “Amazon Effect”
Fed Going to Hike 3 times into this, with mortgage rates rising and housing slowing? https://t.co/ySWEYjn1IX pic.twitter.com/xbhMYJAWi2
— Mike Mish Shedlock (@MishGEA) December 16, 2016
Bonus Reason
If you are looking for a bonus reason, consider interest on the national debt: Rate Hike Spotlight: Interest on National Debt; What Can Possibly Go Wrong?
It would not surprise me in the least if the Fed did not hike at all. It would not even surprise me if the next move was a cut.
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I have been stating a hike was not happening for a long time too except by the end of the year. That said, the Federal Reserve will undoubtedly hike at least once more next year. I have no doubt the socialist Fed hates the idea of a Republican President. Hopefully she will be replaced. Even so, the Fed needs to raise rates back to normalcy, so a Fed hike late may not be that bad given they can lower it when a downturn happens like normal.
This Federal Reserve is playing with dangerous fire keeping rates this low for this long into any cycle.
I have been stating a hike was not happening for a long time too except by the end of the year. That said, the Federal Reserve will undoubtedly hike at least once more next year. I have no doubt the socialist Fed hates the idea of a Republican President. Hopefully she will be replaced. Even so, the Fed needs to raise rates back to normalcy, so a Fed hike late may not be that bad given they can lower it when a downturn happens like normal.
This Federal Reserve is playing with dangerous fire keeping rates this low for this long into any cycle.