In the last two weeks, traders have dramatically shifted their views on the likelihood of a March rate hike. Just two weeks ago, the chance of a March hike was around 20%. After today’s much anticipated speech in Chicago, expectations surged to 97%, according to Bloomberg.
Two weeks ago and until today, I was in the “go” camp for a March hike. I still think it’s possible, but if it happens, it’ll be because President Trump and the Republican Congress delivered something phenomenal to address job growth and reduce long-term debt obligations.
In the past few years, Chair Yellen cited the economy, China, and Europe as impediments to rate hikes. In today’s talk, she went out of her way to explain that international concerns have abated and shifted the focus to Congress. Now, it appears, Congress is the only impediment to future rate hikes. Which means…
She’s punting. To Congress.
It should be noted that she has consistently pressed Congress on fiscal reform, especially in the past two years, however today she went out of her way to repeatedly mention Congress and express how “disappointed” she was that fiscal risks, which we’ve known about for “decades,” have been heretofore ignored.
With that said, I expect Congress to act – on a border tax, on Social Security, Medicare & Medicaid – in the next couple weeks – and without notifying anyone of their plans ahead of time.
What would prompt such wild and unlikely speculation?
March 15th is Debt Ceiling Day. The Office of Management and Budget (OMB) is now led by the former Tea Partying Congressman Mick Mulvaney who favors using the debt ceiling to win budget concessions.
To that end, anything dramatic, especially in the case of the tax code and entitlements, would have to occur within the first 100 days of his Presidency. After that, Congress shifts into campaign mode. Also, don’t expect to hear anything about this in the press. As President Trump has repeatedly said, the press is the enemy. At least in the case of actually enacting entitlement reform, he’s right.
So look out for some major changes by March 15, which means that you should be long the dollar at the market open, but likely short until then.
Here’s where we stand on the Daily chart for now. You can see that I’m short the USD.JPY and plan to be so for at least a few days or longer. Entry is at 114.10 with a bottom of the range target of between 112.02 and 112.82.