Yellen’s rate hike timeline explained

To expand on yesterday‘s post, What can Fed Chairwoman Janet Yellen do?

With a negative Q1 GDP, she certainly cannot raise rates at this month’s meeting. Yellen has also cancelled her appearance in August at the Kansas City Fed’s annual economic fishing tourney at Jackson Hole, Wy, suggesting she will have nothing good to say at the time.

My thinking is September is off the table for any move in rates, given a weak forecast for Q2 and not wanting to throw a taper tantrum on top of a usually volatile late September/October trading history.

Granted we no longer have to worry about a lack of liquidity in the markets in Oct. caused by funds migrating west to pay farmers for their goods, like in the late 1800’s and early 1900’s, but the tape is there to analyze as to an increase in the VIX.

I believe the fly in the Fall ointment will be Greece. Yes it’s making headlines today and tomorrow, but the full-blown fallout will not happen until Sept. when the default actually happens. Until then the can will be kicked and kicked all summer, since most of the participants will be away on holiday until Sept.

So that leaves the Fed governors with a mid-December option. Do you want to tweak the market during its “window dressing” time?

As funds large and small lock in profits and sell off the dogs to get their capital losses, liquidity is tight and the pattern is set in stone not to tamper with monetary policy, when half the trading desks are empty.

So as I have said since January, I see no rate rise this year. The Fed will merely run off their book and roll over its holdings into newer securities, holding their breath that nothing implode on its watch, while the pols in Washington do nothing to help the economy. Good luck with that.

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