It is both intriguing and discouraging how quickly our little brains forget the things that we learn and we regress to become entrenched again in our personal agendas. After last week’s congressional testimony by Janet Yellen, the perceived likelihood of rapid rate hikes these next few meetings was a virtual certainty. Throw a three-day President’s Day weekend at those trading money for a living however and that confidence wanes significantly. Today’s Fed Fund futures polls are predicting only a 17.7% probability for a March 15 rate hike, a 44.1% chance of a hike on May 3, and a 69.9% expectation for a 0.25% advance on June 14. It’s like the classic kids’ party game where the target is right in front of you, but after putting on a blindfold, you lose all sense of reality.
The fundamentals only confirm that the economy is ripe for higher interest rates. The National Association of Realtors said that existing home inventory has declined by 22% in the last six months. Lower supply=higher prices. Housing isn’t the only winner here, the S&P has gained 13.3% in the last three months. Higher prices, higher wages, and higher employment rates=inflation. And inflation=higher interest rates. Even the donkey can see that.