U.S. GDP, Inflation and Unemployment – FOMC Economic Projections The Fed expects GDP growth of 6.5%, inflation of 2.4% and a drop in the unemployment rate to 4.5% this year. Image: The Daily Shot
Fed Funds Rate – Target Probabilities at the Fed’s FOMC March 18 Meeting Traders see a 17.7% probability of a 25-bps rate cut at the Fed’s FOMC March 18 meeting. Image: CME Group
Fed Rate Cut – Overnight Indexed Swaps (OIS) Strip for FOMC Meetings over the Next 12 Months Traders see one more Fed interest rate cut this year. Image: Morgan Stanley Research
Before the Next FOMC Meeting, the Fed Funds Market Is Pretty Accurate Probability of a Fed rate cut on July 31, 2019: 100% (Fed funds market expectation). Image: Bianco Research
The Fed Funds Market Is Rarely Wrong About the Next FOMC Meeting Seven days before a FOMC meeting, the market has been accurate 95% of the time since 1994. Image: Bianco Research
S&P 500 – Quantity-On-Loan on the SPY U.S. ETF This short interest proxy on SPY US ETF has increased significantly since the FOMC meeting. Image: J.P. Morgan
The Market Has Correctly Called Each Fed Rate Decision since 2010 And since 1994, seven days before a FOMC meeting, the market has been accurate 95% of the time. You may also like “The Fed Funds Market Is Rarely Wrong About the Next FOMC Meeting.” Image: Deutsche Bank
Most Important Variables Explaining the S&P 500’s YoY Return Today, the two most important variables explaining the S&P 500’s YoY return: FOMC rate change and U.S. hard economic data. Image: Arbor Research & Trading LLC
The U.S. Unemployment Rate Is Historically Low But the FOMC projection suggests that the unemployment rate cannot improve indefinitely. Image: Federal Reserve Bank of Richmond
What About the Predictive Power of the Fed? As former Fed policymaker Narayana Kocherlakota said in 2016: “Don’t rely on FOMC forecasts of future fed funds rates.” Why? Because the economy is often shaken by crises and does not evolve as expected. Image: Hedgeye Risk Management LLC