Monday, December 12, 2016

And You Thought They'd Never Hike

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The Fed is about to make history with their second rate hike in a decade and maybe the most gut-wrenching hike ever.

The key is not the hike itself but the Fed's change in projections.

While the Fed wants to run the economy hot, how they really feel will show up in their projections.

First we watch projections then we watch "action." The outcome is binary. If the market doesn't get hit hard shorts will cover, sending markets up another few steps.

This feels like the most anticipated rate hike in the history of mankind. All year Fed officials have been whipping investor expectations back and forth: hike, hold, hike, hold. The happy day is finally here. More than the hike itself though, we're looking for the Fed's new expectations and we're looking for action into the event. If the market (NYSEARCA:SPY) doesn't get hit hard it can be another bullish catalyst to get markets moving up.
How's Your Stomach Feeling?
Source: Interactive Brokers

Source: Interactive Brokers
Above are the January 2017 fed funds futures, which encapsulate the entire 2016 year of Fed expectations. The future is priced 100 minus the expected rate. A jump means a rate hike was taken "off the table." A drop means a rate hike was back "on the table."

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