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My how things have changed.

In October, the market expected a rate cut in December and another one in January and half of one in March.

There were no cuts in December and January. And now there’s only a 17 percent chance for March.

Budget Busting Promises

Two-and-a-half rate cuts that were priced in have since flown out the window.

Some of that is due to expected Trump policy. He has made budget-busting promises to end tax on tips, on Social Security, and on overtime.

He wants to restore State and Local Tax (SALT) deductions to buy votes from Democrats for the tax cuts he really wants.

And he proposes to pay for all of this with tariffs, which is ridiculous.

Huge Range of Possibilities

I don’t rule out rate cuts because no one knows what his immigration and tariff policies will do to the economy. For now, the setup looks more like a stagflationary brew. And that would imply rate hikes not cuts.

Our first big clue will be on February 1 when Trump has twice promised to hike tariffs on Canada and Mexico by 25 percent.

That would be a signal to the world that Trump may not honor any deal, even ones he personally negotiates.

I fail to see what possible good can result from that. So color me still skeptical that he does what he says.

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