THEME: INTEREST RATES & INFLATION
There has been a lot of buzz about interest rates & inflation. The market is now turning bullish on the basis that the market has already priced in 25 basis point moves for each of the next 5 FOMC meetings. Clearly the Fed understands that not acting aggressively to bringing back rates to a "neutral" 2.5-3.0% risks stoking inflation.
What is not discussed is whether the consumer has priced in five 25 basis point hikes! I think that consumers are always reactive rather than proactive, so that when these hikes start hitting in a noticeable way, i.e. when the money outflow starts to hit, they will change their behavior in an abrupt way. This is a serious risk that has NOT been priced in.
There has been a lot of buzz about interest rates & inflation. The market is now turning bullish on the basis that the market has already priced in 25 basis point moves for each of the next 5 FOMC meetings. Clearly the Fed understands that not acting aggressively to bringing back rates to a "neutral" 2.5-3.0% risks stoking inflation.
What is not discussed is whether the consumer has priced in five 25 basis point hikes! I think that consumers are always reactive rather than proactive, so that when these hikes start hitting in a noticeable way, i.e. when the money outflow starts to hit, they will change their behavior in an abrupt way. This is a serious risk that has NOT been priced in.
posted by Johnny @ 6:46 AM
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