I guess we can count on a quarter-percentage point rate hike at the conclusion of the Federal Open Market Committee Meeting on Wednesday. CME Group's excellent FedWatch tool shows a 98.9% chance of a 25-basis point increase to a range of 4.50% to 4.75%., with a 1.1% chance of remaining at the current target rate of 4.25% -4.50%.
OK, so the surprise is not there.
But, as always, the most important play is the next play. For the following Federal Open Market Committee meeting on March 22, what are the possibilities? Current rate target is 4.25% to 4.50%, and remember that we are already baking in another quarter-percentage point on Wednesday:
So, the vast majority of forecasters see two quarter-percentage point hikes in the next 60 days.
And then, with the May 3 meeting, it gets interesting.
For the June 14 meeting, the probabilities are as follows:
The bond market is telling us the terminal rate will be 4.75% to 5%, or another half a percentage point from the current rate. Two more 25-basis point hikes. But a significant minority see three more hikes at that rate. What does this all mean? The Fed Is putting the brakes on the economy. Free money is dead. This rally in the Nasdaq has been completely nonsensical, and driven by the giant jump in Tesla- (TSLA) based on Elon Musk's completely numbers-free ranting about demand for Tesla's 5.5-year-old Model 3 and soon-to-be-3-year old Model Y.
I have seen this movie before. Fade it, man. The ProShares UltraShort QQQ (QID) is a great way to play the opposition -- and and for god's sake, get yourself some United States Natural Gas Fund (UNG) , Barclays iPath Bloomberg Natural Gas Subindex Total Return ETN Series B (GAZ) or ProShares Ultra Bloomberg Natural Gas
(BOIL) , because natural gas is going to come back just as the Nasdaq begins to crack. Please don't believe that those two things are not related. Recent low readings for inflation metrics have been almost entirely driven by the pullback in natural gas prices. Natural gas will have her day. Winter is far from over.
And just remember the Fed can control short-term interest rates, but with quantitative easing slowly dying off, the FOMC's marginal control over long-term interest rates is waning. So, there, as always, I have a model portfolio for you: It's called WYLD. Valley National 5.50% Fixed to Floating Rate Preferred Series B (VLYPO) is a damn good way to protect your portfolio against higher long-term interest rates.
