Beware the Ides of March – Rate Hikes and Debt Ceiling
The evolving view of Fed rate hikes has been the primary catalyst for asset class moves over the past week. With the odds of a rate hike occurring next week pretty much at 100%, the market has needed to quickly adjust to a more aggressive Fed schedule. Any hesitation that we had for a March hike evaporated after Yellen essentially affirmed that March was on the table during her presentation last week. Her message essentially echoed the procession of Fed speakers all last week making their case that inflation and jobs were progressing as expected, making a March move a likely possibility. Today’s ADP report, which beat on the heels of stronger goods producing hiring, pushed what doubt remained in the market, as odds were 96% yesterday. While we still have non-farm in a few days, it has correlated well with ADP over the past six months, so we will lean that risk is for a better than expected result, although wage growth remains a wildcard. Having said that, the report would need to indicate a change in the employment picture, which is difficult to envision given today’s ADP, the string of weekly employment reports and overall confidence numbers.