Whispers Of An Emergency Fed Rate Hike As Soon As Tomorrow

[SunTrader]

Bullard has always been a bit of a hawk. The part that made news IMO was him saying 100bp by July and yet there are only THREE meetings in that span. Lots of folks felt like it was going to be .25 every meeting. Suddenly we had a math problem if his comment holds true. Either one of the meetings has to be .50 OR we get an inter-meeting move. It makes a good amount of sense that an inter meeting move may be prior to March as these things take a while to have the intended effect.

Lots of institutions have pricing models with assumptions built in. When you code in another possible interest rate hike that wasn't there, the model changes and gives you different asset allocations. The move yesterday was likely some asset shifting given that ONE Fed Governor is now publicly pushing for 100bp by July.

(Bloomberg)
The surge in U.S. consumer prices by more than forecast in January is adding to expectations that the Federal Reserve will raise rates soon and quickly. Goldman Sachs Group Inc. now sees seven 25 basis points hikes in 2022, one for every meeting left in the year. Traders are also pricing close to even odds of a 50 basis points move at the March meeting. Yesterday, Federal Reserve Bank of St. Louis President James Bullard, an FOMC voter this year, only added to that speculation when he said he like to see a full percentage point of tightening by July 1. He also raised the possibility of a move between scheduled meetings.

 

[RedSun]

Bullard has always been a bit of a hawk. The part that made news IMO was him saying 100bp by July and yet there are only THREE meetings in that span. Lots of folks felt like it was going to be .25 every meeting. Suddenly we had a math problem if his comment holds true. Either one of the meetings has to be .50 OR we get an inter-meeting move. It makes a good amount of sense that an inter meeting move may be prior to March as these things take a while to have the intended effect.

Lots of institutions have pricing models with assumptions built in. When you code in another possible interest rate hike that wasn't there, the model changes and gives you different asset allocations. The move yesterday was likely some asset shifting given that ONE Fed Governor is now publicly pushing for 100bp by July.

I do not think there is anything wrong with Bullard statement. Fed can certainly do a 0.50% in March meeting. Bond market already accepted that as given. Market would be surprised if Fed does not do that.

Total 1% before July 1 is perfect doable and Fed should just do that. Of course Bullard is only one Fed member. Bond traders agree with him. I agree with him too. Fed has been behind the curve for so long.

 

[RedSun]

It actually may be a good day to buy dip.

Traders already started buying dips......

Market over-reacted.

 

[RedSun]

I think Bullard's statement may have been coordinated with Jay Powell. A top Fed official won't speak out without his own responsibility. It could be the directive from Fed Chair to communicate with the market and get prepared for the 1% rate increase by July 1.

This is the same way company CEOs "guide" analysts of the company earnings. That is a part of the company "earning" game. Fed had no game to play here. Just want to communicate.

 

[kroxobor]

Actua

With the punditry obsessing over the March FOMC meeting, where odds earlier today hit 100% of a 50bps rate hike before easing modestly (and more than 6 hikes for all of 2022)...

... the real action is in the February Fed funds contract which has spiked to 13bps, suggesting 5bps of tightening relative to the effective Fed funds rate of 0.08%.

Why is this notable? Because the February contract expires on Feb 28, more than two weeks before the March 16 FOMC decision. This means that someone is preparing for an intermeeting rate hike, some time before March. And plugging in the numbers, the 13bps in the Feb contract means that there is now a 30% chance of an emergency rate hike.

Impossible? Not according to Fed watcher and SGH Macro strategist Tim Duy who writes that he would "not be surprised by an intermeeting move either tomorrow Friday or by Monday. I know, this is crazy aggressive."

Aggressive? yes. Crazy? perhaps - after all the Fed is still buying bonds as part of its ongoing QE which is expected to conclude in late February/early March.

In other words, we may soon face the monetary paradox of the Fed hiking rates even as the Fed is still easing monetary policy through QE, and the biggest joke here - the Fed would be tightening conditions to contain inflation that is almost entirely supply-driven and which the Fed has no control over.

Of course, the Fed has done crazier things - like backstopping the entire corporate bond market and effectively nationalizing it during the peak of the covid crisis. So while we don't know if the 30% odds of an emergency rate hike are accurate, be on the watch for an emergency Fed declaration tomorrow and Monday at 8:00am ET which is the Fed's preferred time for unexpected pre-market announcements.


https://www.zerohedge.com/markets/whispers-emergency-fed-rate-hike-soon-tomorrow

Actually the odds of a 50 bp move in March has decreased on Friday so I'd this is a kind of a brave call. The inflation is still expected to start fading in 2Q because so there is a risk that Fed will choke growth with abrupt or too aggressive action.

 

[SunTrader]

Actua

Actually the odds of a 50 bp move in March has decreased on Friday so I'd this is a kind of a brave call. The inflation is still expected to start fading in 2Q because so there is a risk that Fed will choke growth with abrupt or too aggressive action.

Interest rate hikes, especially multiple ones, usually take many months - like 6 to 12 months minimal.

Things happen fast these days, so maybe it might be more like 3 to 6. Time will tell.

 

[kroxobor]

Interest rate hikes, especially multiple ones, usually take many months - like 6 to 12 months minimal.

Things happen fast these days, so maybe it might be more like 3 to 6. Time will tell.

Yeah exactly that's why recent run on hopes of the Fed's fast action is an overreaction and it looks like that it's gradually reassessed towards correct outcome.

 

[Nine_Ender]

Yeah exactly that's why recent run on hopes of the Fed's fast action is an overreaction and it looks like that it's gradually reassessed towards correct outcome.

The first few rate hikes will have zero impact on corporate NA and a good chunk of the inflation will likely temper. If we look at 2016, a similar vibe existed on this site and a normal size correction occurred. Many decided the bull was over. In reality, numerous rate hikes came and markets went much higher from later that year until Covid hit. The reason was earnings expansion. And anyone on here claiming we don't have earnings expansion isn't paying attention. Imagine when the supply chain problems dissipate, Covid ends as a meaningful threat, and consumers are more free to spend the excess savings they have now. That could be dramatically bullish. Might be tempered by the rate hikes but guess what that's why they are hiking because the economy may overheat.