Monday, January 23, 2017

Fed Funds Futures Make No Sense

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*The Fed is constantly becoming more hawkish.

*The market though is not following.

*If the market is up because of fiscal spend excitement rate expectations should be higher too.

*What gives?

Fed Expects Three Hikes And Hawks Increase
The last FOMC meeting surprised markets with the Fed's expectations of three (not two) rate hikes for 2017.
We've also reported that multiple Fed members are becoming increasingly hawkish.
The trend is higher which means that we could actually have more than three 25bp hikes by year end.
If fiscal spending and tax cuts get passed and make their mark on the economy the Fed will need to tighten at an even faster pace.
Many believe the market is up because of excitement over fiscal spend and tax cuts.
If the market is up why doesn't it believe that rates will be higher?
But The Market Doesn't
Source: Interactive Brokers
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