They say it’s a fool’s task to guess where interest rates will go. Well I’m your Huckleberry! And today is the best day for foolishness as we won’t have to wait long to see if I’m correct, or totally wrong. In case you’ve been living under a rock, “NaNa” Yellen and her committee are expected- with a 94% probability- to increase the Fed funds rate by 25 to 50 basis points.
1st Prediction: 25 bps Increase
Yeah, I called her “NaNa”. I know it’s not nice, but purposefully manipulating asset prices and robbing your nation of a respectful savings rate isn’t very friendly either, so she gets a nickname. It will only be a 25 bps increase because anything more would reek of politically motivated retribution against our new Maniac-Elect and his Russian Hackers that stole the election. 25 bps will be NaNa’s participation trophy for good ol’ Barry O’s AWESOME job saving the U.S. economy with record debt, food stamps and minimum wage jobs. And it won’t disrupt this Fed’s track record of doing pretty much nothing. Thank you NaNa!
2nd Prediction: Temporary Drop in Rates
“But you just said rates were going up?!?!” Yup! I did. Which is exactly why there will be a very slight 5 – 20 bps TEMPORARY dip in rates. The market tends to overreact, which is why we saw the 10yr TSY yield jump from 1.88% to 2.07% after Election Day and continue its climb towards 2.5% as of yesterday. The market HAS to price in risk and as of today there’s still a risk that the Fed could make a +50 bps move, so that probability is what helped rates move higher than where they should be right now. Once the Fed does exactly what it’s been telegraphing for the past year the markets will breathe a small sigh of relief knowing all is well for now. Rates will basically chill out, drink some egg nog and watch the ball drop like the rest of us.
3rd Prediction: Rates Continue Their Climb in 2017
The only thing markets REALLY hate is unpredictability. Enter President Donald J. Trump. As if the world wasn’t full of enough risks already, the current President Elect will be sworn in as President in 5 weeks. That and we will also be under the rule of the prior administration’s Fed board, who I expect will pussyfoot towards the tried and failed strategy of successive rate hikes. Remember how Bernanke’s successive rate hikes worked out? It won’t be as dramatic as Bernanke’s rate hikes, but it’s very safe to assume that the Fed is slightly ticked off Hillary lost and it won’t be heading to negative rates anytime soon. Bummer huh?
That means the few folks who were smart and daring enough to ink deals set to close late December to inauguration day will see the lowest rates of 2017, and likely a WHILE longer. That tingling in your spine is your brain telling you that you just missed out on record low rates and you’ve only got a few days left to do something about. YES, Rhenium Capital may still be able to help you lock rate and close before inauguration day.