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March 27, 2006

The Funds Rate Path: Bloggers And The Market Align

Last week Tim Duy revealed...

At a minimum, Fed Chairman Ben Bernanke’s speech reinforces my view that a move beyond 5% is not in the mindset of the FOMC at this point. At a maximum, it leads me to shave down my expectations for a move to 5%.

Toni Straka said...

My bets lie with a pause at 5% but I still see Fed funds between 5.25% and 5.75% later this year.

... and Nathan Kaufman added:

Something in the text [of the Beige Book] may signal that the U.S. economy is not overheating, that inflation is less of a threat, or that interest rate hikes may be less likely in the future.

Good call, lads.  That, at least, is the impression one gets from the current vintage of Carlson-Craig-Melick estimates of funds rate probabilities, wherein the expectations for another increase in May backed off a tad...


 

May_16


 

... and the probability that the funds rate will not move any higher than 5 percent made a run for the money:


 

June_4


 

I've officially retired the picture showing the market's (completely uninteresting) guesses about where the dust will have settled once the FOMC adjourns tomorrow, but it is in the attached PowerPoint and flash files, if you want a gander just for old-time's sake.

Download Imp_pdf_slides_for_blog_032406.swf
Download Imp_pdf_slides_for_blog_032406.ppt
Download implied_pdf_may_032406.xls
Download implied_pdf_june_032406.xls

UPDATE: William Polley has a round-up of press speculation. The Capital Spectator breaks the data down into the indicators saying "go" and those saying "no".

March 27, 2006 in Fed Funds Futures | Permalink

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Comments

What insanity - if we were in ancient Greece someone would be killing chickens and reading their entrails about now trying to predict the future. Fed's raising tomorrow .25. Oh well - one day story.

My question is this - why the hell wasn't the rate raised in about 4 each 1.25 bites and gotten over with it. No one is going to convince me that this creep along they have been playing for the past several years has done anything to anything.

Proof - seen the price of gold lately? It is going up for a reason.

Posted by: john | March 27, 2006 at 06:43 PM

john, i agree about the rate timing. it has been a horrific trade for interest rate futures traders!

on the price of gold though we disagree. I don't think that the price of gold is an accurate measure of the inflationary sentiments anymore. I think gold prices are increasing because they haven't had a reason to increase supply in recent years due to the price. Now that the Chinese have discovered new wealth, and the Indians along with them, demand has increased and it has driven the price up.

the gold bugs will disagree with me, and I happen to know the guy who bought the all time high ever in gold futures back in the early eighties,(he swears he will get even in his lifetime!) but this rally is pure economics. Inflation has nothing to do with it.

Posted by: jeff | March 27, 2006 at 07:24 PM

No gold bug here. I'm just saying that in a world drowning in fiat (including India and China) gold is going up for a reason. I think it is just a primitive, deep in the gut, can't describe what's wrong, fear. But you are probably right - it is probably just folks buying what they believe to be valuable.

Posted by: john | March 28, 2006 at 06:39 AM

Remember the Fed's motto: anything worth doing is worth overdoing and for overlong. June 5.25% if only because 5% is a nice round number that sounds like it was set way back 2 years ago by the guy, what was his name, who used to run the show.

As to velocity, absolutely if we had 1/4, 1/2, 1/2, 1/2, 1/2, 1/4 to 3.5% by early 2005 we would have cooled just as effectively and capped the insane housing appreciation mania without endangering ARM mortgages prepared to reset in 2006-07.

Posted by: Robert Cote | March 28, 2006 at 08:44 AM

I couldn't have said it better Robert.
The ARM holders coming in for adjustment are going to get killed, especially the subprimes with 6.50% margins. I'm already seeing it.

Posted by: Lyon | March 28, 2006 at 12:25 PM

I couldn't have said it better Robert.

Thanks but you did. ;-)

The ARM holders coming in for adjustment are going to get killed, especially the subprimes with 6.50% margins. I'm already seeing it.

OMFG, plus 650bp? When you said this the only phrase that came to mid was; "Carter Era." I had no idea the margin was so large. I'm so personally embarrassed kinda like Bush I getting lambasted for not knowing the price of a loaf of bread. Remember that?

My biggest concern isn't the fundamentals; people paying too much and paying high rates but rather I'm worried about the banks. For example; a Neg-Am loan is reported as earnings totalling from payments (real) AND increases in principal (unreal) AND unpaid intro rate differences(unreal). No one gave them money for those last two but it is recorded as income. This isn't a restatement like Freddie and their 2 1/2 years of no filings. This is WORSE.

Posted by: Robert Cote | March 28, 2006 at 02:22 PM

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