- According to Goldman Sachs, the odds of a Fed rate hike coming up at the March meeting, which is less than 2 weeks away is now 95%
- It was 90% before Yellen spoke, that was looking at the Fed Fund futures, in fact the probability of a rate hike had been rising all week based on speeches of a number of Fed officials
- Everyone indicating that a rate hike was coming soon
- Nobody actually said how soon
- But they kept talking about why raising interest rates would be appropriate
- Why they didn’t want to wait too long
- But of course they always reiterate that they want to proceed slowly
- And of course, that they are data dependent
- Meaning that in order to deliver these rate hikes that they claim would be appropriate
- They will be slowly applied over some abstract period of time and
- The economy has to evolve according to their expectations
- Which probably is not going to happen
- But nonetheless, when Janet Yellen spoke, this was the last opportunity that a Fed official had to kind of dial back those expectations
- If Yellen didn’t like the fact that the markets were 90% sure of a March rate hike
- She had the opportunity to dial that back in her rhetoric
- And she did not
- She allowed the markets to continue to price in a rate hike in the March meeting
- And that is why, now, the odds went from 90% to 95%, which is virtually a lock
- Which means that barring any huge drop in the stock market between now and the March meeting
- That hike’s probably going to come
- Because I think that the reason the Fed feels confident to raise rates is that the Dow is at 21,000!
- Just like it felt confident to raise interest rates the first time in December of 2015 because the markets were giving a false signal that rate hikes were OK
- And, of course after the rates were hiked, the market thought about it again, and it dumped
- And then we had the worst January in the history of Janaries
- And the Fed waited until the following December to raise rates again
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