Lots of talk about rate hike timelines today.
Traders got excited about talk of a June liftoff after the FOMC minutes but a day later all the talk is about December.
Some implied probabilities to keep in mind from Fed funds futures:
- The chance of a June hike is 7% from 5% before the minutes
- Probability of a July (or sooner) hike is 12%
- September at 31%
- October at 38%
- December at 56%
That's much more dovish than most commentary (including talk from Fed members) would lead you to believe. One take is that markets are over-estimating the effects of a soft Q1 and how 'patient' Fed members are willing to be. Another interesting angle is that other asset classes might not be as dovishly priced as rate futures.
There was an interesting debate in the FOMC minutes about foreshadowing the timing of liftoff.
"With regard to communications about the timing of the first increase in the target range for the federal funds rate, two participants thought that the Committee should seek to signal its policy intentions at the meeting before liftoff appeared likely, but two others judged that doing so would be inconsistent with a meeting-by-meeting approach. Finally, many participants commented that it would be desirable to provide additional information to the public about the Committee's strategy for policy after the beginning of normalization." the minutes said.
The lack of consensus around signaling means it won't be done formally. That means it will either:
- Be a surprise, or
- Be sloppily signaled through speeches, or leaks to the press
Keep your guard up.
