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So where will the Fed Funds Rate pause?
Old 08-08-2018, 03:53 PM   #1
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So where will the Fed Funds Rate pause?

I've been thinking about this off and on for a while. The Fed indicates that they are "on track", and the market expects that the Fed Funds Rate will reach 2.5% in Dec, with a 0.25% hike in each Sept and Dec (94% probability of Sept hike, 70% probability of Dec hike).

What happens next year - seems maybe only another 0.25% or two are expected. Less certainty there.

According to a blog I follow, the 2 year note is a very good indicator of where the bond market expects the Fed Funds rate to be. As the 2 year note approaches 2.7%, right now the bond market is indicating that 2.75% is likely where the Fed will stop - or at least pause for a while. So perhaps 1 more hike in 2019?
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During initial phases of Fed hikes, 2s front-run the Fed, speculating on “how high.” A trader of 2s cannot buy at a yield which will soon be underneath the cost of money -- until preliminary signs of a cracking economy. Then 2s stop rising and are overrun by Fed funds just before the panicked series of Fed cuts, trying to put a bottom under the new recession.
https://www.pmglending.com/blog/mort...-barnes-8-3-18

Will be interesting to see how this plays out.
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Old 08-08-2018, 04:34 PM   #2
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I am still in the middle of a CD Ladder build, so a little selfishly I hope to realize the full 3 year ladder before rates peter out.
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Old 08-08-2018, 07:27 PM   #3
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Well, I bet you have at least another year, maybe a bit more.
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Old 08-08-2018, 07:53 PM   #4
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4% - I can dream.
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Old 08-08-2018, 07:53 PM   #5
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My guess is they keep going until they induce a recession.
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Old 08-08-2018, 07:57 PM   #6
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My guess is they keep going until they induce a recession.
Agree. That's their MO.
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Old 08-08-2018, 08:09 PM   #7
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I can see them pausing. They have before. They also have a monster QE unwind going on.
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Old 08-08-2018, 08:11 PM   #8
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I can see them pausing. They have before. They also have a monster QE unwind going on.
That may be the x- factor. We’ve never seen anything like it to my knowledge. Who can say what will result from it.
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Old 08-08-2018, 08:25 PM   #9
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That may be the x- factor. We’ve never seen anything like it to my knowledge. Who can say what will result from it.
They started this series with a 1 year pause during 2016 after the the first 1/4 point rise in Dec 2015. There were obviously some economic concerns that made them wait before resuming.
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Old 08-09-2018, 06:26 AM   #10
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My guess is they keep going until they induce a recession.
Yep, agreed.
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Old 08-09-2018, 08:36 AM   #11
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My crystal ball says 3.0% or 3.25%, sometime in late 2019. Where it goes from there will depend on the economy.
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Old 08-09-2018, 08:44 AM   #12
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When our Pen Fed 3% CDs mature at the end of the year and in Feb of 2019, I will start another CD Ladder. Probably 2 - 5 year.
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Old 08-09-2018, 09:51 AM   #13
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Here is a site that gives Fed rate hike probabilities:
https://www.cmegroup.com/trading/int...n-to-fomc.html

When I click on "Probabilities" on the left side, it shows 96% probability for Sept and 67% for Dec (the pink boxes in table).
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