So where will the Fed Funds Rate pause?

[audreyh1]

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?

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/mortgage-credit-news-by-louis-s.-barnes-8-3-18

Will be interesting to see how this plays out.

 

[Dtail]

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.

 

[audreyh1]

Well, I bet you have at least another year, maybe a bit more.

 

[jim584672]

4% - I can dream.

 

[Popeye]

My guess is they keep going until they induce a recession.

 

[corn18]

My guess is they keep going until they induce a recession.

Agree. That's their MO.

 

[audreyh1]

I can see them pausing. They have before. They also have a monster QE unwind going on.

 

[Popeye]

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.

 

[audreyh1]

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.

 

[COcheesehead]

My guess is they keep going until they induce a recession.

Yep, agreed.

 

[mrfeh]

My crystal ball says 3.0% or 3.25%, sometime in late 2019. Where it goes from there will depend on the economy.

 

[ShokWaveRider]

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.

 

[Lsbcal]

Here is a site that gives Fed rate hike probabilities:
https://www.cmegroup.com/trading/interest-rates/countdown-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).