Time for a Rate Hike Sneak Attack?
Is today the day Janet Yellen channels her inner John Rambo?
All she needs to smite her enemies is a red headband, some camouflage war paint and a rate-hiking machine gun.
That’s right—some folks think we could see a rate-hike sneak attack today.
‘The Federal Reserve is likely to hold interest rates steady this week in the face of disappointing economic data over the last month, economists said, although some think it is a closer call than the market expects,” MarketWatch reports. “Talk of an interest rate hike persists.”
Fed chatter is off the charts heading into today’s meeting, running at a close second to Brad Pitt and Angelina Jolie divorce gossip. Even former president Bill Clinton weighed in on the Fed on CNBC yesterday, saying that “really smart people” like Janet Yellen and Lael Brainard will make a decision that “will be manageable economically.”
Despite the gossip drummed up by the financial press, the actual odds of a hike today are quite small.
According to a CNBC poll, 90% of economists don’t think a hike will happen this month. On the other hand, fed funds futures have ticked up to 24% this week. Barron’s notes that up from a low of 17% last week. Oh, and bond king Bill Gross says the odds for a hike today are more like 50/50. Of course, prognostications like these are spooking investors no matter what the official odds say.
I don’t know whether all this means the Fed will raise rates a quarter percent or hang tight until December. And I’m certain all the hoopla has a lot of folks scratching their head about what’s next.
Normally, I don’t like to waste my time griping about the Fed. Market research and trading more than fills my plate. In fact, the last time I wrote a single sentence about all of this nonsense was during last month’s Jackson Hole Fed-fest.
But all of the hoopla surrounding today’s decision is throwing a wrench in our trading machine. We do our best to ignore the noise. But sometimes, it’s just too damn loud and we can’t think straight.
Back in the winter when stocks were crumbling left and right, Yellen & Co. pushed back on their hawkish stance and ruled out an April rate hike. Then June was off the table. Now September is supposedly on deck. Maybe.
How quickly things change…
After the Brexit vote and subsequent market rout, the futures markets were placing the chances of a September rate hike at 0%. Yet here we are bombarded with rate-hike talk on decision day as the odds creep higher.
Although I can’t tell you what will happen with the Fed today at 2 p.m., I can tell you that the market will take some time to absorb the news. Whether Yellen & Co. raise rates or not, the market will probably treat us to more than a couple of false moves higher and lower.
We’ll have a chance to survey the damage tonight and early tomorrow morning.
In the meantime, I don’t recommend gluing yourself to your computer screen and attempting to trade every single move as the market digests the news.
If we do see a surprise hike today, it will come with plenty of fireworks.