The Most Boring Rate Hike Cycle Ever?

The Most Boring Rate Hike Cycle Ever?

With the Fed set to announce their decision on interest rates today (even though markets give just a 4% chance of a hike), we honestly couldn’t believe that it’s been 183 days since the last fed rate hike. When does a rate hike cycle stop being a cycle and just being just a single hike?  Regardless, it seems like a lot has happened since we put together our “Infographic: Your Portfolio Guide To Rising Interest Rates,”  so we updated a section in it to reflect the current environment.

June Fed Meeting Update

While this gives a snapshot of the probability of rising interest rates now and in the coming months, here’s some other factors that the Fed may be weighing.

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  1. Inflation & Deflation

Last Fed meeting, the FOMC said that if economic factors meet their benchmarks, it would raise rates.

“Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the committee’s 2 percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June,” it said.”

But a recent depressing jobs report showing the weakest pace of hiring in nearly six years, sort of put the everything’s great in the economy vibes on the backburner for now.

  1. Brexit and VIX Spike

In the past three trading days, the VIX has spiked roughly 57% as Europe has sold off heavily due to concerns about the Brexit.  A spasm like this heading into the meeting is likely to make them that much more nervous.

  1. World Negative Interest Rates

The German 10-year sovereign bond yield turned negative for the first time ever today. Germany is not alone in negative interest rates. While the U.S. raised rates in December, the rest of the world is doing something different and something unprecedented.

  1. The 2016 Election

This might be a little premature as we are months away from the election, but a change in POTUS means a change in economic policy, which could mean a change in the markets.

The chances are small we see a rate hike today, but they’re greater than zero. Plus, as Han Solo said, never tell me the odds.

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