In NFTRH 932, we reviewed CME projections at 87% for a .25% rate hike tomorrow. Today CME sits at nearly 93%. However, there are other factors involved that I want to cover.
We all know that CME Group are a wind sock. They blow with the prevailing winds, which have indicated a rate hike. This update questions whether they have been set up to provide a contrarian bull play for markets.
Personally, I think it is low odds that Warsh would sacrifice his credibility (‘what credibility for a brand new Fed head?’ one might ask) by holding the rate steady.
I think a rate hike is coming tomorrow, with the plan for commercial banking to do the heavy lifting in the future. That has been the big picture macro plan. Less Fed influence, more commercial banking influence. In the meantime, the yield curve flattener that Bessent’s thus far ineffective long-term bond buying and a Warsh short end hike would try to create could be the plan.
But think about this. Markets are under pressure before the Fed is set to raise rates (as instructed by the bond market). I’ll put on my tin foil hat and ask what if the word comes down through the channels that ‘Kev, you’re gonna hold tomorrow, and here’s why [fill in the blank]‘?
So while I am expecting a rate hike, I am aware of what a rate hold – behind some reasoning or other – could launch this mess on its way to the mid-term elections. The precious metals would probably lead. With Yellen in his ear, Powell played politics (in my opinion) in the 2024 presidential. There was a well placed rate .5% cut in the ramp toward the election (Sept. 18).
There could also be a hike and ‘buy the news’ tomorrow. Either way, I could see myself getting rid of my gold stock hedges before tomorrow’s announcement, not letting another profit get away from me. That may depend on what happens between now and then (gold stocks still under pressure at the moment).
As for the broad market, I am loathe to short it for the above reasons as well.
The third option is we are going broadly bearish now. It is the less favored option, but it is an option to respect.
I want to stay risk-managed with cash through tomorrow, with the prospect of taking profits on the gold stock shorts foremost in mind.
Thanks for the snapshot/update Gary. Much appreciated.