Hello peeps!
Looking at how in December 2015 the Fed was forecasting
hiking by a further 100 basis points through 2016
(Fed to Raise Interest Rates Again in March, Follow Up With Fewer Hikes)
and how there has been no rate hike yet this year, I look forward and see
how there are only three rate decisions left to the end of the year:
This would imply two 50-point (or 0.50%) hikes either in a row or at alternate meetings,
which would go against the Fed’s insistence on rate changes being ‘gradual’; what is more,
the November rate decision (Wed. 2nd) will coincide this year with a USA presidential election
(Tue. 8th): looking at the last quarter of a century of presidential elections and checking the
rate changes made by the Federal Reserve in those years, you can see that it was never done
in November except once. Here is a screenshot from the document that I created:
What all this boils down to is the following:
we had no change this month, and there will be no meeting next month (August); with November
historically a no-go area when presidential elections take place, this leaves only September and
December to raise rates by 100 basis points; given that this would be the antithesis of gradual,
let us assume 50 basis points: however, December rate changes are not the best bet, because the
end of the year is also historically not a popular choice, with the Fed only raising rates in that month
only nine times since 1990 (granted, in 1990 and 1991 there were two December changes each time,
so technically we are talking eleven changes; also, there were no changes at all between Dec. 2008
and Dec. 2015, so we should say that there were eleven rate changes in December months in the last
(25 - 7=) 18 years).
This would only leave September, which is also when a growth forecast update and a full press
conference from the Chair (Yellen) are given, to deliver one more rate hike since Dec. 2015:
what size will that rate hike take? If 0.25% (25 basis points), then this would still leave the Fed’s
rate below 1% since the completion of ‘The Taper’ nearly two years ago
(http://www.cnbc.com/2014/10/29/fed-completes-the-taper.html).
The Fed Funds Futures see an 82% chance of a 25-50 basis points hike in September
(Countdown to FOMC - CME Group) :
What are your thoughts on this?
Discuss.
(I am off to bed haha)
Happy Trading