The Fed met this week and voted to keep their overnight interest rates unchanged. Sounds just peachy, right? After all, mortgage rates were in the 5’s and that’s palatable. But then Chair Powell went on to say that inflation remains more sticky than previously calculated. The Board now sees a 2.7% projected increase rather than the previously forecasted 2.4%. So rather than three rate cuts this year they don’t see the need for any, but reserve the right to initiate one and only one toward the end of the year if absolutely necessary. “Oh, and BTW, I’m not leaving the Fed until you drop this frivolous malfeasance lawsuit”.
The post-meeting reaction was a cautious disaster because the markets don’t want Mr. Powell to stay on at the Fed. Subsequent comments from other prominent FOMC members over rising oil prices and a flatlined labor market added more fuel to the bond fire. Then this morning the European Central Bank laid out plans to raise their interest rates at the end of April. The ECB’s comments fueled the selloff in the bond market, and long term interest rates have risen 1/2% in the last three days.
On Tuesday, the likelihood of cheaper financing was pretty high, starting with a Fed rate cut heading into summer. Now the probability of the Fed dropping rates is 0% all the way until December 9th, when the possibility-o-meter reaches 5.9%. To make matters even worse, the chances of a rate hike steadily rise from 12% at next month’s meeting up to 28% by October.
