InternationalMarkets & Economy

Why you should expect a rate hike when the Fed meets in June

The Fed calculus is changing fast toward rate hikes -- more and sooner than markets are priced for
  • A rate hike in June is looking more likely.

Long-term rates improved slightly this week, if anything, but the Fed calculus is changing fast toward rate hikes -- more and sooner than markets are priced for, and perhaps closer to the Fed’s “damned dots” than any of us have thought. A hike in June has decent odds, now. Here is the list of game-changers. Oil first. The Fed’s primary job is to prevent inflation, and since 1972 oil has been Enemy Number One. Oil is up to $50 per barrel. Most thought a rise from the January lows at $33 was reasonable, but the rise from $40 brought daily assertion that the glut would return quickly and prices fall anew. Not. More important for the Fed, looking out a few years, the plunge in prices guarantees suppression of new exploration and investment and a price snap-back proportionate to the low. The Fed cannot maintain emergency-easy policy if oil has turned. Second, housing. Housing is crucial to recoveries, and it has been slower to take off in this recovery than any prio...