Authored by Carson Block via Bloomberg.com,
Euphoria has been pervasive in the stock market since the election. But investors seem to be overlooking the risk of a U.S. government default resulting from a failure by Congress to raise the debt ceiling. The possibility is greater than anyone seems to realize, even with a supposedly unified government.
It appears that, the worse the economy was doing, the higher the odds of a rate hike.
Putting the Federal Reserve's third rate hike in 11 years into context, if the Atlanta Fed's forecast is accurate, 0.9% GDP would mark the weakest quarter since 1980 in which rates were raised (according to Bloomberg data).
For those curious what the Fed's latest dot plot reveals, here is the summary:
This suggests that at least as of now, the Fed sees no need to move its rate hike forecasts materially higher. As a reminder, the medians increased in December after most declined in previous three quarters.
US stocks are up, Treasuries are up, emerging market stocks are up, oil is up, and high yield bonds are up ahead of The Fed's (foregone conclusion) decision this afternoon.
However, if everything is so awesomely hawkish, why is the dollar dumping?
Is a dovish hike coming?
While it is now virtually assured (odds are 95% according to the CME) that the Fed will announce a 25 bps rate hike today following an unprecedented attempt to reprice the Fed Funds market over the past month by Fed speakers - recall that as recently as three weeks ago, nobody expected a March move by the FOMC - what traders and analysts will be focused on today are hints for the future of the Fed's rate hike moves.