Wednesday, December 16, 2015

Time for bold Fed predictions: CJ sez "up" today, twice next year.

The Federal Reserve is set to lift interest rates for the first time in over nine years on Wednesday at 2 p.m. Eastern. 
The announcement, scheduled to come out of what’s called the Federal Open Market Committee, will be followed by a news conference with Federal Reserve Chairwoman Janet Yellen, who will speak at 2:30 p.m. 
The Fed has kept interest rates in a band between zero and 0.25% since December 2008, when it lowered rates in the midst of the Great Recession.

Now that the U.S. economy has been growing steadily for years, the central bank is poised to begin lifting rates. 
The likely rate hike has been well choreographed. Markets were pricing in an 83% chance of a rate hike, as of Monday afternoon. 
One of the big questions awaiting Yellen is how quickly the Fed will follow up the first rate hike with another — some say it could be as little as three months later...
Of course, I predict (like darn near everyone) a 0.25% hike today.

I predict for 2016:

1. There will be at least 2 rate hikes next year.
2. Both of them at the 0.25% level.

My reasons: the Fed has to signal to the US and the rest of the world that the era of zero-interest rates is over, and raising rates at least once more before the election is likely, probably in March or so, so no one is thinking "this is intended to influence the election one way or another."

All of this said, I personally feel there hasn't been a ton of evidence that we have a great economy right now. The Conference Board forecast is for 2.6% growth next year, and I'd take the under on that one. (of course you would, CJ. - ed.) GDP was up and down for this year, and wage growth is meh at best. (maybe I'm pessimistic on that one.) So I don't see evidence for cranking up interest rates.

Readers, I'd love comments, but I'd value predictions for 2016 more. We'll check in again next year and see who wins - maybe a picture of Paul Volcker as a prize?

UPDATE: Going up! From the FOMC:
Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

6 comments:

  1. Sure hope the economy is as good as what they said. :\

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  2. Will call that SPY (more funner range than Fed rate) closes 12/31/15 at 209 and closes 12/31/16 at 210.

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    1. BT, I will take the optimist's side of that one for $5, i.e. it will be higher than 210.00 at close on 12/31/16. Deal?

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    2. Done!

      So we're clear, bet is over/under on SPY at close 12/31/16 with you on the over? 210.00 we'll consider a draw?

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    3. Yes, agreed, 210.00 will be considered a draw.

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  3. Once at most, I don't think the rest of the world is going to be doing well enough for the US economy to continue to grow enough to justify increasing further.

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