3 Responses

  1. Frist.

    Yellen has consistently signalled continuing cooling of QE. But I read and hear different reports of her view on keeping interest rates low every few days. Does Wall Street think the Fed will keep interest rates low for, say, two years?


    • “Thirty eight women and children recently detained at the U.S. border were flown home to Honduras on Monday, in what U.S. officials say is the first of an expected increase in expedited deportations….The deportees, including 21 children aged 18 months to 15 years, were flown from El Paso, Texas, to the Honduran city of San Pedro Sula, near the country’s Caribbean coast. San Pedro and nearby cities are the top Central American source of unaccompanied minors traveling to the U.S., said an internal Department of Homeland Security study. The U.S. has deported some 82,000 Central Americans, mostly adults, since October, the agency said.” Dudley Althaus and Laura Meckler in The Wall Street Journal.

      “The first planeload of deportees to arrive since the policy shift included 21 children, aged between 18 months and 15 years, who flew into Honduras’ second city, San Pedro Sula, from El Paso, Texas, amid Honduran government promises of aid and jobs. Accompanying them were 17 women family members. The new government of Juan Orlando Hernández carefully choreographed the event and is clearly hoping other would-be migrants will be deterred.” Jude Webber in The Financial Times.

      “Migration on these terms is not a solution to the problems facing Central Americans. Because jobs in the U.S. are scarce, and living costs are so high compared with Central America, even legal migration can beggar them. So what about all those women and children piling up on the border? Humanitarian advocates assume that the U.S. is their sanctuary — but what if it is the illusions of migration that wrecked their families in the first place?” David Stoll in The Wall Street Journal.


    • Mark:

      Does Wall Street think the Fed will keep interest rates low for, say, two years?

      There are monthly Fed Funds futures contracts, which are essentially the market’s consensus of where the FF rate will be on various dates in the future. The current month is trading at 99.91, implying a FF rate of 9 bps (just subtract the price from 100 to get the implied rate). Each monthly contract builds in some probability that the fed will start to hike. The July 2015 contract is trading at 99.66, implying a hike of about 25 bps by then. Once you get out past 1 year, the contracts are not especially liquid, but there are still prices. The July 2016 contract (which has not traded once yet today, an indication of how illiquid they are) is currently priced at 98.72, implying an almost 100 bp hike from the previous July, and a 125 bp hike from today.

      Libor futures contracts are a lot more liquid than FF contracts in the out years. Current 3 month libor is at 23.3 bps, and the closest futures contract, August, is trading at 99.765, so essentially on top of the actual libor rate. The June 2015 contract is at 99.455 (implying a hike of 30 bps by then), the June 2016 contract is at 98.475 (another 100 bps hike), and the June 2017 contract is at 97.525, implying a libor rate of nearly 2.50% by the summer of 2017.


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