Sign up to create alerts for Instruments,
Economic Events and content by followed authors
Free Sign Up Already have an account? Sign In
Quotes
All Instrument Types
- All Instrument Types
- Indices
- Equities
- ETFs
- Funds
- Commodities
- Currencies
- Crypto
- Bonds
- Certificates
Please try another search
💎 Access the Market Tools Trusted by Thousands of Investors Get Started
Rate-Hike Odds Still Wrong
www.investing.com/analysis/cme-fedwatch-and-bloomberg-rate-hike-odds-still-wrong;-deflationary-bust-264780
Rate-Hike Odds Still Wrong
By Mike (Mish) Shedlock | Sep 11, 2015 05:05AM ET As of September 10, the CME has the odds of a September hike by the Fed at 24%. Bloomberg says the probability of a move is 28%.
Bloomberg Rate Hike Odds
CME Fedwatch Odds
Both Models Wrong
What's wrong with both models is they still presume a quarter point hike.
Neither Bloomberg nor the CME allows for the possibility of a Fed hike to precisely 0.25% or to a smaller tighter range.
Given the effective Fed Funds Rate is 0.14% (see upper right of Bloomberg chart), a setting the rate to a flat 0.25% from the current range of 0.00-0.25% (now at 0.14%), would be both a "move" and a "hike".
Tighter Range
The Fed could also use ranges as Bloomberg and CME imply, but target ranges in 1/8 of a point increments rather than 1/4 point increments.
For example the Fed could target a range of 0.25% to 0.375%.
I suspect the odds of a move to a flat 0.25 or a range (0.25% to 0.375%), are far greater than Bloomberg's "probability of a move" set at a mere 28%.
I updated my charts today.
Flattening of Rate Hike Expectations
Using Fed fund futures from CME, I calculated implied interest rates through December 2017. The line in Blue shows what futures implied on August 19. The line in red is from September 10.
Note the flattening of the curve. This has been happening pretty much all year.
The market initially penned in hikes for January. The hikes then shifted to March, then June, then September, and now December by both the Bloomberg and CME models.
Range Watch
Curve Watchers Anonymous is closely watching the implied baby steps in the the Fed fund futures. Incrementally, the hikes appear as follows.
Fed Funds Futures
Baby Steps Plotted
Fed fund futures imply a very slow tightening of 3-6 basis points a month. The only exception is January to February of 2017 where the incremental rise is 8 basis points (0.080 percentage points).
The Fed does not set policy every month. Instead it does so about eight times a year. FOMC dates are not yet set for 2017, but futures imply something like the following.
Fed Rate Hike Expectations Through 2017
Yellen vs. Greenspan
- The above market expectations are clearly similar to Greenspan's famous statement: Hikes will be at a "pace that's likely to be measured".
- The Yellen expected "pace" is half as often.
- The Yellen expected "measure" is half as much.
Related Articles
Surging Rates Tank Stocks: Time to Watch Spreads Now
By Michael Kramer - Sep 22, 2023
1
Stocks were hammered as rates increased following hotter-than-expected initial jobless claims and the Fed’s less-than-impressive performance on September 20. The 10-year rate...
What Does A Strong US Dollar, Oil And China Growth Mean For Global...
By Daniela Hathorn - Sep 22, 2023
The US Dollar is at a 6-month high, oil is approaching $100 a barrel and China is beginning to reopen. What do all these things mean for global markets?Could we see a rebound in...
Gold Drops Following US Jobs Report; BOJ Keeps Rates Unchanged
By OctaFX - Sep 22, 2023
On Thursday, the Russian rouble (RUB) was the best-performing currency among the 20 global currencies we track, while the Brazilian (BRL) showed the weakest results. The Japanese...
Rate-Hike Odds Still Wrong
Add Chart to Comment
Confirm Block
Are you sure you want to block %USER_NAME%?
By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.
%USER_NAME% was successfully added to your Block List
Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.
Report this comment
I feel that this comment is:
Comment flagged
Thank You!
Your report has been sent to our moderators for review
Add a Comment
We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
Enrich the conversation, don’t trash it.
Stay focused and on track. Only post material that’s relevant to the topic being discussed.
Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.