This feels like a major narrative shift.Just weeks ago markets were debating when cuts start now traders are pricing in possible hikes again. To me, the bond market is forcing the Fed’s hand sticky inflation, higher oil, and rising yields are doing the tightening already.If this continues, rate sensitive sectors could feel the pressure first.
That’s because the bond market is forcing the government’s hand. There was a good article posted earlier in the week about how the bond market will respond. To push back against the bond market would be foolish and not something the Fed can do (or should). The bond market is catching up and going to limit options.
Yields climb on enhanced risk or expectations of higher inflation. If you cut into higher inflation expectations, you risk yields spiraling due to expectations uncoupling from the 2% long-term target, which drastically increases debt servicing costs
Can you point out specifically where that happened in markets and when? Please use tips spreads and CDS so we can separate premia from inflation expectations, so that we can see what you're talking about and where specifically markets "forced" the Fed's hand.
The Fed isn't pushing back on bond markets, and bond flow trades have fully been following Fed sentiment for some time. IDK where that person got that idea from, but it's just nonsense. You can directly observe the shifts in forward yields that happen after FOMC meetings, after governor speeches, etc.
For some reason there's a lot of clueless people on reddit who push this whole "the bond market forced the Fed" thing and honestly that should immediately tell you that the person is full of shit.
Do fixed income markets sometimes diverge heavily from Fed sentiment? Absolutely, and that can sometimes push the Fed to make a different move or accommodate liquidity in various areas - but that's not the case here at all.
If you have access to a Bloomberg terminal go use the commands FWCM and look at the historic forward curve, or you can also go to CME and look at the FFR futures pricing, see the reaction points then line them up with Fed communications or economic data releases. It's very very clear what's pricing itself based on what here.
For the people with variable interest loans such as HELOCs, I’m wondering if we’ll start to see them trying to lock in interest rates now in an attempt to get ahead of this and prevent sticky higher interest rates moving forward.
At my bank, we’re seeing people flock to HELOCs to consolidate credit card debt. Problem is we’re also having a hard time qualifying people because they’re leveraged 50% and up.
Markets have already priced in 1-2 hikes. The only thing you can get ahead of at this point is 2, 3, or 4 hikes. If you're on SOFR as your index, you're sitting at ~3.60% base. With a credit charge of 25 or so bps, the premium over floating today is about 2-3 hikes worth. Tough for many to swallow unless you are really certain this is a multi-year pain.
That is correct. However most people aren't just looking for 3, 6, or 12 month money.
Overnight index swaps on fed funds futures have a full hike priced into the fed funds futures curve by March 2027, and it has a 35% probability of a 2nd hike by July 2027.
You can look at the "Aggregated" tab on the FedWatch page for the cumulative implied probabilities.
Also, for some reason people on this site seem to really misunderstand the concept of current pricing vs what's going to happen.
Currently, in mid May, based on economic data and trends, we see a n 18% chance of a hike. by December that moves to about 50/50 hike vs maintain.
Between now and then is two full quarters of economic data and development. Pick any single point in time and move 4-6 months out, conditions are almost always completely different.
These conditions will change over time. Inflation may fall back in line, unemployment may deteriorate which pushes down on demand and the probability of hikes, etc. There's absolutely no reason for people like the above person to be talking about this like it's set in stone lol.
If lowering rates becomes more damaging to the market because it has already priced in rate hikes, then even a new Fed Chief seeking a looser policy will be forced to act in line with expectations.
> This feels like a major narrative shift.Just weeks ago markets were debating when cuts start now traders are pricing in possible hikes again.
I wouldn't say it's a quick narrative shift, for those who have been watching markets this has been a pretty gradual trend across the last 6-8 months.
fun fact, CME calculates implied percentages of a given rate level based on futures pricing here:https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
But even more fun fact? there's a tab there that says "historical". And if you click it, it gives you the probability levels dating back as far as they recorded for that given meeting (Generally ~2 years).
So if you look at something like the December meeting futures, which shows a decent minority probability of a hike (majority probability still currently to keep rates flat). But you can also see that this isn't a brand new shift. the probabilities of cuts slowly deteriorated across the last few months, and looking back as far as March there's indications that the expectation was either flat or even slightly up.
A lot of debate and narrative gets shaped in the media, especially media that's not aimed at financial professionals, that often times heavily opposes market sentiment. If you've been looking at actual pricing, markets have seen the possibility of cuts evaporating for 3-4 months, with the possibility of a hike being a subtle small chance from March on.
Largely due to irresponsible messaging by the current fed board. The meeting before last they were still forecasting rate cuts for the year. At the beginning of the year the dot plot was forecasting three cuts. Totally delusional
Had the Iran thing lasted like 2 weeks and been a flash in the pan like the nuclear site strikes then potentially yes. The problem is that US political leadership right now doesn't know what path its on so it can't clearly communicate it. That leaves the Fed guessing as much as anyone else and sometimes when you guess, you guess wrong.
The Iran war is just a cherry on top, if just a really huge one, on the rapidly accumulating heap of damage being inflicted on the financial state of the country during this "administration." From the annihilation of intentional trust in the US to the massive redirection of spending from productive investment towards destructive violence, internally and externally, from ICE and the misguided mercantilist escapades by the military. All dis-inflationary counterweights in the previous American lead world order have been cut loose. The only thing left is the AI pipe dream. Iran gets solved tomorrow and its just undoing 1 of the countless self inflicted crisis ongoing.
That’s because we were headed for cuts, how was that delusional? The current inflation spike is driven primarily by energy shocks from the Iran war which started 2 months into the year.
CPI inflation was 2.4% in january and february. But it doesn’t even matter if you or i think cutting was the right thing to do — the fed certainly was messaging some cuts and intended to do so. Then an unnecessary war in the middle east created a massive energy shock that is causing a global inflation crisis. I don’t expect the fed to have anticipated that.
Can't wait for Trump to be mad at Warsh. Trump does not understand how the fed works and is probably asleep every time someone tries to explain it to him.
It’s never his fault when the economy goes south.
We will see if the voters can see though his bullshit. Republicans have only had 100 percent control of all pillars of government.
Can't wait for Trump to say he was surprised Waerh was even nominated. And for the media to completely gloss over the obvious combination of dementia/stupidity/narcissism that statement displays.
Trump didn't really listen to the details when Warsh's name was proposed for fed chair.
Warsh's big proposal has always been to shrink the Fed's balance sheet. This raises rates on mortgages and long-duration treasuries. Then he would compensate for the contractionary effect on the economy and business investment by dropping the short-term Fed funds and discount rates, steepening the yield curve, reducing the financialization of the economy, and giving the Fed more room to navigate future crises.
Trump heard "drop short-term rates" and was like "He's our man!"
Warsh has always been an inflation hawk. He will not be averse to raising rates if necessary.
But the desired strategy is probably quantitative tightening coupled with lower rates. Fed does less to backstop businesses but makes it cheaper to borrow.
It’s not a bad scenario, necessarily. It would privilege companies that have operational discipline and free cash flow, and probably be bad for companies that rely on financial engineering and liquidity to succeed.
It is a predictable based on his historical record full of relevant business successes. Plus he uses a corporation front to avoid being directly affected financially
This is why Trump has been pushing so hard to get his own guy in there, to replace the guy he previously appointed but still attacks every day. Do you think Trump cares about you ir the American economy and that's why he wants rates lower? No, his business depends on loans and his own interest payments will increase with higher rates. That's it. Trump only cares about himself. In everything he does.
You do realize Walsh is one vote right? And the one person who voted last time to lower rates resigned. So even if he’s dumb enough to vote to lower he’s still just one vote.
He's not just 1 vote, he's now Chairman of the Fed, which sets him up perfectly to facilitate endless corrupt deals with the big investment banks, just like he did in 2007 and 2008. You remember those grand policies he rejected the last 15 years? He was their architect just a few years earlier. He is now Trump's bitch at the Fed. Too easy to dismiss him as jyst 1 vote. What could go wrong, right? Our economy is already very shaky right now. 1 more mistake could cause it all to come crashing down. And Warsh's fed policy and program mistakes weren't small in the past. They were huge.
The two year is currently .5 higher than the Fed funds rate. Bond holders are saying raise the rate to the Fed. Not sure a hike fixes anything because the inflation is due to tariffs and oil prices.
Rate hikes will slow the growth of the money supply, which will inevitably tame inflation.
The market sees inflation on the rise, and is thus pricing in rate hikes which will force the Fed’s hand even if it wanted to (for some reason) seek cuts.
There is a very real possibility that we are about to go through a major commodities cycle with the price of copper, oil and precious metals going through the roof.
This will create major inflation, which should result in rate hikes but the next fed chair will be an idiot who cuts rates in an inflationary environment to earn short term political points for dear leader.
Raising rates is so dumb what’s wrong with these fools. As if higher rates will remove tariffs or lower the cost of gas let alone build out energy infrastructure. Just dumb.
Edit: The best part of this sub is the fact that many will downvote but not engage because they just regurgitate surface level gold standard textbook talking points.
Illustrious_Lie_954 | 13 days ago
This feels like a major narrative shift.Just weeks ago markets were debating when cuts start now traders are pricing in possible hikes again. To me, the bond market is forcing the Fed’s hand sticky inflation, higher oil, and rising yields are doing the tightening already.If this continues, rate sensitive sectors could feel the pressure first.
joepez | 13 days ago
That’s because the bond market is forcing the government’s hand. There was a good article posted earlier in the week about how the bond market will respond. To push back against the bond market would be foolish and not something the Fed can do (or should). The bond market is catching up and going to limit options.
King-Meister | 13 days ago
Could you please elaborate more on:
How is the Fed pushing against the bond market (assuming it was via rate cuts)?
Also, how is the bond market catching up and forcing the government's hand?
ActivatingEMP | 13 days ago
Yields climb on enhanced risk or expectations of higher inflation. If you cut into higher inflation expectations, you risk yields spiraling due to expectations uncoupling from the 2% long-term target, which drastically increases debt servicing costs
RIP_Soulja_Slim | 12 days ago
Can you point out specifically where that happened in markets and when? Please use tips spreads and CDS so we can separate premia from inflation expectations, so that we can see what you're talking about and where specifically markets "forced" the Fed's hand.
RIP_Soulja_Slim | 12 days ago
The Fed isn't pushing back on bond markets, and bond flow trades have fully been following Fed sentiment for some time. IDK where that person got that idea from, but it's just nonsense. You can directly observe the shifts in forward yields that happen after FOMC meetings, after governor speeches, etc.
For some reason there's a lot of clueless people on reddit who push this whole "the bond market forced the Fed" thing and honestly that should immediately tell you that the person is full of shit.
Do fixed income markets sometimes diverge heavily from Fed sentiment? Absolutely, and that can sometimes push the Fed to make a different move or accommodate liquidity in various areas - but that's not the case here at all.
If you have access to a Bloomberg terminal go use the commands FWCM and look at the historic forward curve, or you can also go to CME and look at the FFR futures pricing, see the reaction points then line them up with Fed communications or economic data releases. It's very very clear what's pricing itself based on what here.
Historical-Edge-9332 | 13 days ago
Random thought. In the UK are they called James Bonds?
JoJackthewonderskunk | 13 days ago
It wasn't nearly as bad a joke as the downvotes would have you belive. Keep your chin up champ!
Historical-Edge-9332 | 13 days ago
😘
No_Power1121 | 13 days ago
For the people with variable interest loans such as HELOCs, I’m wondering if we’ll start to see them trying to lock in interest rates now in an attempt to get ahead of this and prevent sticky higher interest rates moving forward.
i-was-way- | 13 days ago
At my bank, we’re seeing people flock to HELOCs to consolidate credit card debt. Problem is we’re also having a hard time qualifying people because they’re leveraged 50% and up.
lunchbox_tragedy | 13 days ago
Oooh, that sounds bad
GoBucks3852 | 13 days ago
Markets have already priced in 1-2 hikes. The only thing you can get ahead of at this point is 2, 3, or 4 hikes. If you're on SOFR as your index, you're sitting at ~3.60% base. With a credit charge of 25 or so bps, the premium over floating today is about 2-3 hikes worth. Tough for many to swallow unless you are really certain this is a multi-year pain.
throwaway00119 | 13 days ago
FedWatch has a 20% probability of a single rate hike by September. I wouldn’t call that “priced in.”
GoBucks3852 | 13 days ago
That is correct. However most people aren't just looking for 3, 6, or 12 month money.
Overnight index swaps on fed funds futures have a full hike priced into the fed funds futures curve by March 2027, and it has a 35% probability of a 2nd hike by July 2027.
You can look at the "Aggregated" tab on the FedWatch page for the cumulative implied probabilities.
RIP_Soulja_Slim | 12 days ago
Also, for some reason people on this site seem to really misunderstand the concept of current pricing vs what's going to happen.
Currently, in mid May, based on economic data and trends, we see a n 18% chance of a hike. by December that moves to about 50/50 hike vs maintain.
Between now and then is two full quarters of economic data and development. Pick any single point in time and move 4-6 months out, conditions are almost always completely different.
These conditions will change over time. Inflation may fall back in line, unemployment may deteriorate which pushes down on demand and the probability of hikes, etc. There's absolutely no reason for people like the above person to be talking about this like it's set in stone lol.
Dazzling_Morning2642 | 13 days ago
It’s always the bond market
Prestigious_Load1699 | 13 days ago
This is a good thing.
If lowering rates becomes more damaging to the market because it has already priced in rate hikes, then even a new Fed Chief seeking a looser policy will be forced to act in line with expectations.
RIP_Soulja_Slim | 12 days ago
> This feels like a major narrative shift.Just weeks ago markets were debating when cuts start now traders are pricing in possible hikes again.
I wouldn't say it's a quick narrative shift, for those who have been watching markets this has been a pretty gradual trend across the last 6-8 months.
fun fact, CME calculates implied percentages of a given rate level based on futures pricing here:https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
But even more fun fact? there's a tab there that says "historical". And if you click it, it gives you the probability levels dating back as far as they recorded for that given meeting (Generally ~2 years).
So if you look at something like the December meeting futures, which shows a decent minority probability of a hike (majority probability still currently to keep rates flat). But you can also see that this isn't a brand new shift. the probabilities of cuts slowly deteriorated across the last few months, and looking back as far as March there's indications that the expectation was either flat or even slightly up.
A lot of debate and narrative gets shaped in the media, especially media that's not aimed at financial professionals, that often times heavily opposes market sentiment. If you've been looking at actual pricing, markets have seen the possibility of cuts evaporating for 3-4 months, with the possibility of a hike being a subtle small chance from March on.
TLDR: look at markets, not CNBC articles.
Accomplished-Mud3085 | 13 days ago
Largely due to irresponsible messaging by the current fed board. The meeting before last they were still forecasting rate cuts for the year. At the beginning of the year the dot plot was forecasting three cuts. Totally delusional
Not_Legal_Advice_Pod | 13 days ago
Had the Iran thing lasted like 2 weeks and been a flash in the pan like the nuclear site strikes then potentially yes. The problem is that US political leadership right now doesn't know what path its on so it can't clearly communicate it. That leaves the Fed guessing as much as anyone else and sometimes when you guess, you guess wrong.
Illustrious-Lime-878 | 13 days ago
The Iran war is just a cherry on top, if just a really huge one, on the rapidly accumulating heap of damage being inflicted on the financial state of the country during this "administration." From the annihilation of intentional trust in the US to the massive redirection of spending from productive investment towards destructive violence, internally and externally, from ICE and the misguided mercantilist escapades by the military. All dis-inflationary counterweights in the previous American lead world order have been cut loose. The only thing left is the AI pipe dream. Iran gets solved tomorrow and its just undoing 1 of the countless self inflicted crisis ongoing.
JoeDirtTrenchCoat | 13 days ago
That’s because we were headed for cuts, how was that delusional? The current inflation spike is driven primarily by energy shocks from the Iran war which started 2 months into the year.
Accomplished-Mud3085 | 13 days ago
Wrong my friend. We were stuck at 3%
JoeDirtTrenchCoat | 13 days ago
CPI inflation was 2.4% in january and february. But it doesn’t even matter if you or i think cutting was the right thing to do — the fed certainly was messaging some cuts and intended to do so. Then an unnecessary war in the middle east created a massive energy shock that is causing a global inflation crisis. I don’t expect the fed to have anticipated that.
Accomplished-Mud3085 | 13 days ago
And it was 2.7% in both November and December. Closer to 3 than 2. Rate hikes needed then, rate hikes needed now
MisinformedGenius | 13 days ago
Pointing out that inflation was 2.7% before it was 2.4% seems to directly contradict your claim that inflation was “stuck at 3%”.
Klugenshmirtz | 13 days ago
Can't wait for Trump to be mad at Warsh. Trump does not understand how the fed works and is probably asleep every time someone tries to explain it to him.
3_Thumbs_Up | 13 days ago
Trump will try to make the fed the scapegoat for any economic woes.
Possible-Nectarine80 | 13 days ago
That and Biden & the Dems.
Torchy84 | 13 days ago
It’s never his fault when the economy goes south.
We will see if the voters can see though his bullshit. Republicans have only had 100 percent control of all pillars of government.
Casual0bserver | 13 days ago
He literally said last year that the good parts of the economy are trump, the bad parts of the economy are Biden
martin | 13 days ago
but not 600% or 1,000% or 1,500%, so plenty of room to blame others.
pagerussell | 13 days ago
Can't wait for Trump to say he was surprised Waerh was even nominated. And for the media to completely gloss over the obvious combination of dementia/stupidity/narcissism that statement displays.
nostrademons | 13 days ago
Trump didn't really listen to the details when Warsh's name was proposed for fed chair.
Warsh's big proposal has always been to shrink the Fed's balance sheet. This raises rates on mortgages and long-duration treasuries. Then he would compensate for the contractionary effect on the economy and business investment by dropping the short-term Fed funds and discount rates, steepening the yield curve, reducing the financialization of the economy, and giving the Fed more room to navigate future crises.
Trump heard "drop short-term rates" and was like "He's our man!"
Illustrious-Lime-878 | 13 days ago
Trump picks people based on loyalty tho, so its just a likely Warsh is entirely compromised in some way, as it is merely circumstantial.
flightless_mouse | 13 days ago
Warsh has always been an inflation hawk. He will not be averse to raising rates if necessary.
But the desired strategy is probably quantitative tightening coupled with lower rates. Fed does less to backstop businesses but makes it cheaper to borrow.
It’s not a bad scenario, necessarily. It would privilege companies that have operational discipline and free cash flow, and probably be bad for companies that rely on financial engineering and liquidity to succeed.
Bad for real estate and crypto
Good for builders and energy
devliegende | 13 days ago
Warsh was an inflation hawk when it was fashionable on the right to be hawkish on inflation
duxpdx | 13 days ago
Trump lacks the intelligence to understand even if someone did it explain it. The man is an idiot.
Youkiame | 13 days ago
Blame why Biden elected Warsh and how Biden destroyed the economy
Responsible_Ad_7995 | 13 days ago
Donnie bankrupted a casino, an airline, a liquor company, a steak company, a university, and for his final act, he’s going to bankrupt the world.
nik-nak333 | 13 days ago
Four* casinos/resorts
itec745 | 13 days ago
It is a predictable based on his historical record full of relevant business successes. Plus he uses a corporation front to avoid being directly affected financially
Surreal__blue | 13 days ago
He did state that "the whole world is a casino now"
brianishere2 | 13 days ago
This is why Trump has been pushing so hard to get his own guy in there, to replace the guy he previously appointed but still attacks every day. Do you think Trump cares about you ir the American economy and that's why he wants rates lower? No, his business depends on loans and his own interest payments will increase with higher rates. That's it. Trump only cares about himself. In everything he does.
energeticquasar | 13 days ago
With Powell staying in his seat, the new Trump lackey replaces the old Trump lackey. So, the overall votes really won't change.
joepez | 13 days ago
You do realize Walsh is one vote right? And the one person who voted last time to lower rates resigned. So even if he’s dumb enough to vote to lower he’s still just one vote.
brianishere2 | 13 days ago
He's not just 1 vote, he's now Chairman of the Fed, which sets him up perfectly to facilitate endless corrupt deals with the big investment banks, just like he did in 2007 and 2008. You remember those grand policies he rejected the last 15 years? He was their architect just a few years earlier. He is now Trump's bitch at the Fed. Too easy to dismiss him as jyst 1 vote. What could go wrong, right? Our economy is already very shaky right now. 1 more mistake could cause it all to come crashing down. And Warsh's fed policy and program mistakes weren't small in the past. They were huge.
Prestigious_Load1699 | 13 days ago
Yikes.
Scrandon | 13 days ago
His “business” doesn’t make any money anyway. He only makes money through corruption and theft.
jdwolosh12 | 13 days ago
Welcome to the world of politics
millerlit | 13 days ago
The two year is currently .5 higher than the Fed funds rate. Bond holders are saying raise the rate to the Fed. Not sure a hike fixes anything because the inflation is due to tariffs and oil prices.
devliegende | 13 days ago
Slower economy will put a brake on oil prices
Prestigious_Load1699 | 13 days ago
Rate hikes will slow the growth of the money supply, which will inevitably tame inflation.
The market sees inflation on the rise, and is thus pricing in rate hikes which will force the Fed’s hand even if it wanted to (for some reason) seek cuts.
WindwardSnow | 13 days ago
There is a very real possibility that we are about to go through a major commodities cycle with the price of copper, oil and precious metals going through the roof.
This will create major inflation, which should result in rate hikes but the next fed chair will be an idiot who cuts rates in an inflationary environment to earn short term political points for dear leader.
moot-moot | 13 days ago
The fed reserve is a panel.
MajorAlanDutch | 13 days ago
Raising rates is so dumb what’s wrong with these fools. As if higher rates will remove tariffs or lower the cost of gas let alone build out energy infrastructure. Just dumb.
Edit: The best part of this sub is the fact that many will downvote but not engage because they just regurgitate surface level gold standard textbook talking points.
Lost-Elephant-6628 | 13 days ago
Correct, it won’t…but it will curb spending to bring the inflation down that is a result of those things..