Happy Pi Day as the Fed rise is not baked in

Happy Pi Day — 3.14159265358979323846264338327950288419716939937510582097494459230781640628620899862803482534211706798214808651328230664709384460955058223…

All life is a circle and everyone in the world has their birthday and age in that number.

Janet Yellen told markets Monday that the Fed would hold their two-day meeting despite a winter storm hitting the DC area. You need to understand that DC considers itself a southern city and snow and ice usually shuts the town down.

So that said, the Fed is meeting to discuss whether to raise their benchmark 25 basis points. The decision will be announced Wednesday at 2pm.

As I have said most recently, I do not think the Fed will raise. No this is a highly contrarian view, since the Street has priced in the rate rise with 100% confirmation.

I have often called the bond market as the adults in the room for being stalwarts of sensibility and not subject to whims of the market. So if you look at the 10-year note over the last two weeks, since Yellen spoke of the data showing that a rate rise could be in the offering. This was probably the third time the Fed chief has spoke about prepping the market. No surprises is her mantra for the markets.

However, the Fed’s dual mandate of full-employment and stabilizing prices, are going in different directions, so which mandate will Yellen & Co. feel needs more attention.

Employment numbers appear to be improving as sentiment on President Trump’s economic proposals have spurred businesses to add full-time staff.

Pricing is where the problem is. Look at energy prices have been falling and retail pricing is cratering as sales fall off the cliff and store chain bankruptcies explode. These developments have the Fed looking at deflationary concerns since energy pricing cycles through a large part of the economy and retail spending makes up a chunk of discretionary spending.

Also look at first quarter GDP, which in late February was projected to be 2.5% is now looking like 1.2%, according to the Atlanta Fed’s GDPNow.

I am going to say the Fed will opt for weighing prices, growth as more important to longer term economic growth at this time. Yellen & Co. will let sentiment take care of the job market for the time being, in order not to constrain credit or strengthen the dollar further.

So I may be eating crow Wednesday afternoon, but I believe I have laid out a solid case for staying still in March.

History is on my side as the Fed has only raised rates twice over the last 10 years.


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