Rate Hike Expectations Dive On Housing Data

Rate hike expectations took a big dive today on poor housing data and/or Trump tariffs flip-flops.

Today's housing report was a disaster vs expectations.

Numbers +- reflect the rate hike odds movement today alone.

Let's compare to a snapshot I took eleven days ago.

Rate Hike Expectations May 12

Eleven days ago, traders were pricing in chances of five or even six hikes. The consensus estimate was a 47.4% chance of at least 4 hikes this year.

Compare the preceding chart to today's chart. There is now a small chance of no more hikes this year.

What Happened?

I rather doubt Trump's trade shenanigans helped any.

One can also ponder this.

By the way, Rosie might need to rethink inflation as well.

Inflation watchers please note: the yield on the 10-year note is back below 3.0%.

Let's not confuse late stage inflation with a massive breakout of stagflation. For discussion, please see Reflections on Late-Stage Inflation.

Mike "Mish" Shedlock

Comments
No. 1-14
Realist
Realist

Agreed. Many US pension funds are seriously underfunded, in spite of overly optimistic discount rates. It does not matter if the Fed raises interest rates. It will not help these underfunded pensions as blacklisted implies. Again, this is not true everywhere in the world. Many countries have OVERfunded pension plans, with very conservative discount rates: the polar opposite of the US.

Liki_Weaks
Liki_Weaks

Agreed. It's the internally set discount rates that are screwing the pensions. They dreamed dreams for far too long, then went risky so they didn't think they'd have to wake up. Falling out of bed onto the floor from a great height, hurts real bad..... Lots of hurt coming.

Realist
Realist

I can never understand the pension argument that blacklisted keeps talking about. He seems to think that pension funds only invest in interest bearing securities and that the Fed is raising rates to bail them out somehow. First; modern pensions are very well diversified. They invest all over the world in equities, infrastructure, private equity, real estate, farmland, forests, mines, solar and hydro facilities, etc etc etc. Second; if pensions had invested exclusively in bonds and other interest bearing securities, rising rates would reduce the value of those investments, which would offset any interest rate gains. The only possibility I can see is that Blacklisted is referring to the discount rate, which pensions use to actuarially project earnings, 75 years into the future. If the discount rate is raised (all other things being equal, such as projected inflation rates, life expectancy, etc), then higher discount rates can be used to reduce future liabilities. However, the discount rate is set internally and independently by each pension fund based on their own projections. It has little or nothing to do with the Fed. I would also note that most US pensions overstate their discount rates, while most other pension funds throughout the world underestimate theirs because of the principal of conservatism. That is why most US pensions are in worse shape then they project, while worldwide, most pensions are actually in better shape then they project.

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