Tuesday, February 2, 2016

The #Fed Postponing Rate Hikes Unit 2017 Says Market

The FedWatch Tool* was predicting a string of interest rate hike through 2016 as recently as early January. After the Fed's January meeting, the probability of another rate hike does not rise above 50% until December 2016. In other words, market participants have gone the expectation of a series of interest rates hikes to no hikes until late 2016 to early 2017. The extreme flip flop of expectations suggests that market participants are confused and uncertain how to read and play the global economic backdrop.

There should be no confusion. The global economy, increasingly burdened by economic mismanagement and the debt excesses of previous expansions, is contracting rapidly. The Economic Activity Composite (EAC), a leading proxy for US economic activity, has been negative since early 2015 (see below). The EAC's contraction, a trend that significantly increases the odds of an officially-recognized recession in the United States in 2016, continues to elude the majority that generally believes the US economy remains on solid footing. The majority, always a day late and dollar short in terms of timing, will panic only after economic reality completely invalidates their beliefs.

The Fed choices are simple: (1) continue raising rates for reasons other than economic perceptions, thus, ensuring the finger pointing of blame will directed squarely at them, (2) follow the misguided economic belief of negative interest rates endorsed by Europe, Japan (most recently), and key US players, or (3) do nothing as domestic economy contracts. The Fed would be wise to continue raising rates, thus, following market forces that are slowly pushing up interest rates throughout the global economy. Wise and self-preservation, however, usually don't coexist during economic and/or financial panics.

This means the minority and Insight readers are expecting the unexpected already.

* Fed Watch Tool is located under Feeds in the left hand column of the desktop format.

Headline: Rate hike? Not until 2017, says market

The market seems to have given up on a Fed rate hike this year—at least for the time being.

The Chicago Mercantile Exchange’s “FedWatch” tool shows that traders are now betting the Federal Reserve will probably wait until 2017 before another federal funds target rate increase.



Market-driven money flow, trend, and intermarket analysis is provided by an Insights key.