Fed Hikes Rates For 3rd Time In 11 Years, Sees Two More Rate Hikes In 2017

Tyler Durden's picture

For the third time since June 2006, The Federal Reserve has hiked rates by 25bps (as 100% expected). If GDP forecasts for Q1 are correct, this will be the weakest economy since 1987 in which rates were increased.

In fact this could be the lowest since Q4 1980 according to BBG data...

 

Fed Headlines:

  • FED RAISES BENCHMARK RATE TO 0.75%-1%; KASHKARI DISSENTS
  • FED: INFLATION CLOSE TO GOAL, REFERS TO TARGET AS `SYMMETRIC'
  • MINNEAPOLIS FED'S KASHKARI PREFERRED NO CHANGE IN RATES

RATES:

The target range for fed funds rate raised to 0.75%-1%; decision includes dissent from Minneapolis Fed’s Neel Kashkari, who preferred to keep rates unchanged; previous hike was last December

RATE OUTLOOK:

  • Deletes the word “only” from expectation that U.S. economy to evolve in way that warrants “only gradual increases” in rates.
  • Keeps reference to fed funds rates as likely to remain below long-run levels “for some time”
  • Monetary policy will support “some further strengthening” in labor market, inflation’s return to 2%

INFLATION:

  • Now says that inflation will “stabilize around” 2 percent over medium term vs prior description that it would rise to 2%
  • Now says inflation’s moving close to 2% objective

ECONOMY:

  • Fed continues to say economic activity expanded at “moderate pace,” U.S. labor market has continued to strengthen, and job gains are “solid”

RISKS:

  • FOMC keeps previous assessment that near-term risks to outlook appear “roughly balanced”; continues to say it’s “closely” monitoring inflation indicators and global economic/financial developments

REINVESTMENT POLICY:

  • Fed continues to say it will keep existing reinvestment policy in place until normalization of fed funds rate “is well under way”; FOMC’s holdings of longer-term securities to stay “at sizable levels”

The key thing going into the FOMC was what happens to the '2018' dot (in the dot plot), and also whether the 'Longer Run' dot will be above 3% - which would be perceived as a very hawkish signal.

  • MEDIAN FED OFFICIAL FORECASTS TWO MORE RATE HIKES IN 2017
  • FIVE FED OFFICIALS SEE 4 OR MORE HIKES IN 2017, UNCH. VS DEC.

Simple before and after:

Some more dot details:

  • 2017 median Fed funds 1.4% vs 1.4%
  • 2018 median Fed funds 2.1% vs 2.1%
  • 2019 median Fed funds 3.0% vs 2.9%
  • Longer run Fed funds median at 3.0% compares to previous forecast of 3.0%

More hawkish.

*  *  *

It appears that, the worse the economy was doing, the higher the odds of a rate hike.

Putting the Atlanta Fed's forecast in context, 0.9% GDP would mark the weakest quarter since 1987 in which rates were raised, according to Julian Emanuel at UBS.

And since the Fed is hardly raising rates in light of the ongoing slowdown in the economy, one can only assume that the reason for the Fed's hike is to put the breaks on runaway inflation and/or various asset bubbles.

 

The big question going in was - why is the dollar fading if everything's so hawkishly awesome?

 

Banks stocks are the biggest winners since The Fed started hiking rates (but that is almost 100% driven since Trump won the election)...

 

Notably since The Fed first hiked rate in Dec 2015, 30Y yields have risen 14bps and 2Y yields have soared 38bps... (and after each hike, yields have tumbled)

 

The yield curve has dramatically flattened since The Fed started hiking rates, but that hasn't stopped bank stocks from soaring...

 

Full Redline below:

*  *  *

Finally, we note that, if history is any guide, stocks could be in for trouble after this 3rd rate hike...

"Many are familiar with the Wall Street adage '3 Steps and a Stumble' popularized by Marty Zweig for the tendency of stocks to sell off after the 3rd Fed rate hike in the cycle," said Nautilus Investment Research's Tom Leveroni and Shourui Tian.

 

"The S&P 500 has endured significantly below average results from 1 to 12 months after 3rd rate hikes in 11 events back to 1955," they wrote in a note on Tuesday. "Six (more than half) of those hikes occurred within a year of a major cyclical top for stocks (1955, 1965, 1968, 1973, 1980, 1999)."

The only exception was in 2004, when stocks continued to rally for another three years before the Great Recession. "Hikes are generally bad for stocks, somewhat bad for the US dollar, and bullish for 10-year yields and commodities," Leveroni and Tian said.

 

 

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flacon's picture

All your base are belong to us!

Looney's picture

 

Q: Where’s freaking Janet?

A: She’s gone hiking.

Looney  ;-)

nope-1004's picture

I think you meant Kiking.

 

CheapBastard's picture

Q: So when do I see at least 3% on my savings' accounts?

A: Not in this lifetime.

NoDebt's picture

Secret video of the Fed's deliberations prior to this rate hike:

https://www.youtube.com/watch?v=45QJiADwGhE

(hint: it's Hudson)


BaBaBouy's picture

Raising The RATES(And The Temp) On Donaldo...

Trump... Firing Her...?

Jim Sampson's picture

NUGT & JNUG are having a nice day.

NidStyles's picture

Q: What is a saving's account?

A: A profitless loan to the banks.

 

Q: Why do the banks get money if I borrow from them, but not if they borrow from me?

A: Stop asking questions goyim.

CrazyCooter's picture

Who thinks they would hold (or cut) if Hitlery won the election?

I never thought they would hike (it was NIRP all the way) - but Trump won - so now they are hiking out of spite.

Regards,

Cooter

Cursive's picture

Exactly.  I don't think anyone's passbook savings or 30-day CD rates are goint to 0.75%.

NoDebt's picture

The banks would need to burn through all of their $2T worth of "excess reserves" (which the Fed pays the the banks .75% to stay on deposit there) before the big banks would need a SINGLE DOLLAR OF YOUR DEPOSITS TO LOAN OUT.

They don't need your deposits any more.  Period.  Therefore, deposit savings rates will be ZERO for the rest of our lives.

 

E.F. Mutton's picture

There will only be one more hike this year.  The second will be canceled due to Soylent Green shortage riots.

Dr. Engali's picture

Bastards won't even give us a Spiderman towel for our efforts.

SoDamnMad's picture

Where is Paul Volker? Now there was a man who could raise rates.  Yellen, not so much.

(but think. She can cut rates in the future and claim she saved the nation cause she is only cutting a few basis points.  When Volker was done taming inflation he cut in one shot what Yellen moved in her entire lifetime X 10)

tiger uppercut's picture

Spiderman towel references still crack me up.

Kaiser Sousa's picture

exactly...

they dont need my deposits...

AND I DONT HOLD THEIR WORTHLESS GREEN PIECES OF SHIT AS SAVINGS...

"how you like me know..."

 - Kool Moe Dee =

 

TeethVillage88s's picture

I hate to ask again. I probably some response before on ZH. About off-shore bank selection. I'll post above.

Cursive's picture

Well, the Fed's between the rock and a hard place and they chose the rock!

Hammer823's picture

Our economy is absolutely dependent on stock prices going up. Trillions in newly created wealth are necessary to fund our government, and make our 401k and pension systems viable.  An ever increasing stock market is NOT optional.  So they rig 3,000 point rallies out of thin air and everyone is richer.  There's more taxes being paid, and retirement accounts are fatter, stoking consumer confidence and consumer spending. That's why stock prices are rigged to go up by our central banks and institutions. There's more than twice as much wealth concentrated in the stock market (30 trillion) than in home equity (14 trillion).  You better believe stock prices are completely manipulated. 

https://www.instagram.com/the_rigged_street_journal/?hl=en

perkunas's picture

"Our economy is absolutely dependent on stock prices going up." not when the people running things, have a plan to make you broke.

ChemtrailPilot's picture

Well sure, but that's an unsustainable Ponzi by definition. People can't buy groceries with Apple shares, at some point they need to actually sell if they're going to spend the money on anything. But if there was actually any kind of broad-based selling pressure to realize that liquidity the bubble would pop very quickly.

Meanwhile you can't generate long-term stock returns just by multiple expansion, at some point prices have to be supported by earnings/dividends for anyone to be willing to hold them. And these valuations are currently either the worst or 2nd-worst of all time by the best measures (John Hussman has been great on this subject). Spending a million dollars on a machine that spits out $1 per year is only a good deal if you can sell it tomorrow for 2 million; otherwise you're just massively overpaying for a lackluster earnings stream. There is a 100% chance that someone is going to find themselves in that position at these market levels, since ultimately someone has to hold every share stock until it gets retired.

Countrybunkererd's picture

..."until it gets retired."  their reasoning is within your last 4 words.  What do the boomers (and now their eldest children) care as long as they get theirs, again and again and again and again and again.  What happens, for example to housing, when all the boomers die off and their grandkids have 100K just in student debt alone and want a house?

pension bombs

sub auto loan issues

still have a housing issue

and on and on and on... balance act "sit down and shut up, you are drunk and standing at the edge of the roof" - can't remember and can't be bothered

 

moneybots's picture

"An ever increasing stock market is NOT optional."

 

Except that the Nasdaq fell 76% and the S&P 50% twice, the second being 57%.

Hammer823's picture

And where are those indexes now?  Every crash in history has been reversed.  Every. Single. One.

Billy the Poet's picture

Long Confederate bonds and shares in British Empire and Rome Inc.

SallySnyd's picture

As shown in this article, the Federal Reserve is following in the footsteps of one of the greatest central bank failures in recent history:

 

http://viableopposition.blogspot.ca/2017/02/the-federal-reserves-reluctance-to.html

 

For obvious reasons, the Federal Reserve should be very concerned that it is retracing the steps of a failed monetary policy experiment.

logicalman's picture

Only failure as far as the 99.9% are concerned and that is no accident.

.1% who have what they have due to being able to produce form thin air what the rest have to labour for.

 

sorocaba's picture

set algos to BUY

sankol's picture

Project Smash Trump just given a filip by the criminal Federal Reserve.

cowdiddly's picture

Ah, I love it when a plan comes together.

What an pedejo move.

Fester's picture

Pendejo?

Excellent word

IridiumRebel's picture

YYYEEELLLLLLEEENNNNNNNNNNNN!!!!!!!!!!

Dr. Engali's picture

Invert that curve bitch. You have your patsy in the office to take the blame for the fall.

MFL5591's picture

Laugable game that was given to the TRIBE in 1913

jm's picture

the long end is gonna whipsaw before it breaks...

Osmium's picture

We have to raise rates in able to lower them.

TeethVillage88s's picture

Could be that Fed Rate has to go up...

In order to save US Insurance Companies like Health Care.

Kaiser Sousa's picture

quick!!!

RUN FOR THE FUCKING HILLS!!!

SELL ALL UR WORTHLESS PHYSICAL GOLD & SILVER!!!

 

yeah right...

DEATH TO THE FUCKING MONEYCHANGERS.

ZH FNG's picture

And gold is immediately up $10.

I don't get it either, but happy to buy phys at firesale prices. (-:

http://goldprice.org/

Muad'Grumps's picture

The Tyler crew has this wrong. This is a dovish statement.

Kaiser Sousa's picture

if i were u based on whats happening to the phony paper prices right now i would until Friday afternoon...

My Kaiser senses tell me they r gonna shit on both Gold & Silver to "get our minds straight"...

but keep dollar cost averaging nan...

we win either way...

 

 

Muad'Grumps's picture

https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20170315...

 

There it is kids. Financial repression. FFRates no higher than 3%. 

 

I don't understand why ZH thinks this a hawkish meeting. This is uber dovish. It's all about real rates!

To Hell In A Handbasket's picture

3%? The derivative bubble cannot handle such rates. A rate decrease will happen within 3 months, because even a .25 bps hike, the system will start to bleed from its arse. 

Mr. Universe's picture

I thought that too, the last two times they raised rates. Yet this calamity continues. I need an honest meditative break....

breathe in strentgh and breathe out bullshit. if your thoughts turn to the three ring shit show of your life, bring your attention back to your breathing, and with each breath feel your body saying,  Fuck That. With passive acceptance just allow distracting thoughts to float by...Fuck That.

TeethVillage88s's picture

Good info Muad' Dibb & Zerohedge.

So... about those off-shore bank accounts. I saw one claiming 3% interest on deposits last week.

Quinvarius's picture

Now the spice will begin to flow out of Treasuries--And into parts unknown.  A 20 trillion gusher is upon us!

besnook's picture

really!?!?! where will it go, to equities with decreasing revenue and profits? to the brics and emerging markets? will all the euros flow to the dollar? carry trade with the yen?

the fed is trying to manage a spectacular explosion.