I’m just the messenger here, but as I see it, interest rates are now entering an UP cycle that’s going to last for at least the next several months.  The wholesale and retail inflation numbers published last week came in higher than expected.  Those reports were ill-timed since the Fed meets tomorrow and Wednesday.  Consequently, there’s a 99% probability that they’ll keep our Central Bank’s rate unchanged at the conclusion of this week’s meeting.  It’s heartbreaking when contrasted with the outlook a month ago when we were on track for a 1/4% rate cut this Wednesday.

Domestic price increases are not the only driver here.  The Bank of Japan is going to raise their rates tonight for the first time in 17 years, which will finally put them in a position to collect interest rather than pay it to entities that borrow from them.  Concurrently, Japan is rolling out the largest country-wide pay increase in over 30 years. Japan has been in a deflationary environment now for an entire generation, so these are big changes that will change the economic dynamics of the Land of the Rising Sun.  That little island is the fourth largest economy on Earth, so the ripple effects will be far reaching, and pose a serious threat to the value of the US Dollar.

A rate cut by our own Samurai Powell will not happen in May, and has only a 51% chance of occurring in June.  From my perspective here four months in the future, July 31 is the first time we see a convincing likelihood for any kind of a rate cut.  The next meeting is in September, where there’s only an 8.8% chance that the Fed will NOT have cut rates, but that’s five months away.  So the “higher for longer” mantra from last summer is playing out as vaguely stated, but longer than hoped.