This post Three Critical Dates for the Fed appeared first on Daily Reckoning.
I managed a track and field in team in high school. I was not the team coach, I was a student-manager who helped out with equipment, scheduling, training and other logistics.
Back in the days before internet I was the kid in the locker room phoning in athlete times and results to the local newspapers before the deadline for the next day’s edition.
I loved the faster track events like the 440-yard sprint and the half-mile distances. I always thought the most challenging track event was the high-hurdles. This combined speed and endurance, with precision coordination and athleticism on the jumps. One mistake in mid-air could result in a disastrous crash on a cinder track and a bloody injury.
It’s hard to picture Janet Yellen in a track suit, but she’s about to run a high-hurdle race of her own. She needs to clear three hurdles perfectly to make it to her self-imposed rate hike finish line on December 13. One false move and her plan to hike rates could end up in a bloody mess on a cinder track.
As you know, the Fed is on track (no pun intended) to hike rates at their FOMC meeting on December 13. This is as close to a “done deal” as you can get. Markets give this rate hike a 100% probability based on the implied probability from the CME fed funds futures contracts.
I’m the outlier.
I’m alone on an island saying that the Fed won’t hike rates based on nine straight months of bad inflation data. I’m not trying to be “in consensus” or “out-of-consensus,” I’m just trying to follow a Fed model that has been almost flawless in its predictive power since 2013.
That model has hit a lot of home runs. If I strike out this time, I’m not going to abandon the model. Even Babe Ruth, Henry Aaron and Willie Mays had their share of strikeouts even as they had slugging percentages in the .700+ range. Fine by me if we can keep up those kinds of long-term results.
Yet, even if you don’t use my Fed model or don’t like to be out-of-consensus, you still have to acknowledge the hurdles facing Janet Yellen as she races down the track to December 13. Here they are:
Tomorow, November 30: This is when the Commerce Department releases the “PCE deflation, core year-over-year” number. Sounds geeky, but that’s the specific inflation number the Fed uses as a benchmark.
The Fed’s target is 2%. The last reading was 1.3%, down from 1.9% at the beginning of 2017. If this number comes in at 1.3% or less, it’s hard to see how the Fed raises rates unless they are willing to ignore their own benchmark in favor of the mythical Phillips Curve and even more mythical “stimulus” effects of the proposed Trump tax bill.
Important voices like Neel Kashkari, Charles Evans, Lael Brainard, Benn Steil and others are already warning that a rate hike in …read more
Source:: Daily Reckoning feed
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