The Federal Reserve is going to raise interest rates next year. That’s what traders in the Fed Fund futures market are now predicting. This month the Fed announced that it is slowly going to end its QE bond buying program it launched in 2020. That process is expected to end by June of 2022. It is at that June meeting that traders are seeing a possible interest rate hike and if not at that one then by July they are pricing in an 80% chance of a hike by then.
Here is how they have the odds of total rate hikes priced in by the end of 2022.
They are looking at an essentially 80% chance of 3-4 rate hikes in 2022.
Of course the Fed really has to raise rates now with the most recent data showing an annualized CPI rate over 6%. Even four rate hikes is likely to be below the rate of inflation a year from now and therefore, still too dovish.
By taking interest rates down to zero the Fed destroyed the bond market, making it dependent on QE programs to continue to even exist.
Next year will mark the start of an attempt to bring it back to life, so that it can operate eventually on its own in the financial markets. They tried to move in that direction in the Fall of 2018 and had to quickly reverse course when the stock market dumped 20% as a result.
There is an old saying that watch out for stock drops when the Federal Reserve raises interest rates three times.
Well, in November of 2021, we are still a ways off from three rate hikes. We gotta get to that first one first before its worth worrying about.
Meanwhile, many individual commodities are exploding higher as the CPI data is similar to what happened in 1969 or 1973. Rates are too low and so inflation is going to continue. Too low rates is the cause of the inflation now hitting people. This is the cost of QE. Yes, it helped create a stock market boom and generate a generation of Robinhood traders, but the cost is inflation.
-Mike
