Hawkish Fed

If there ever was a time for one to bet on the Fed coming out more hawkish than market expectations, it is this one.  I don't remember seeing the investment community this complacent going into an expected rate hike last year at this time.  Of course, the market was weaker back then.

Over the past 3 months, the economic data has been beating expectations.  The S&P is at an all-time high, which is probably the most important factor.  And there is the Trump factor, which will not be mentioned, but is in the back of the mind of Fed officials when they try to forecast growth and inflation.

CESI/USD Index is Over 60

It is interesting to see that the financial pundits believed the Fed and was expecting 4 rate hikes in 2016 after that December 2015 hike, but they were completely wrong, and the Fed surprised on the dovish side at the March, June, and September meetings this year.  I will not mention the other meetings because they seem to be like mini-meetings, where nothing big is decided on.  Now with rates higher than in December 2015, the financial pundits are saying 1 or 2 rate hikes for 2017.  They have finally figured out the Fed's game, which is to overpromise on rate hikes, and underdeliver.  But with those more dovish expectations of the Fed, they are setting themselves up for a disappointment when Yellen starts talking up the economy and inflation expectations.

While I don't think stocks will selloff that much on this news, Treasuries, especially the short end of the yield curve, will probably not like it.  If I had to take a position ahead of the FOMC meeting, I would be shorting T-notes.