On 9/2/2016 I make a post about bad economic numbers driving the market higher that day. That big day was caused by the market precipitants relief that this relieved pressure for an interest rate increase by the FED.
On Wednesday, 9/7/2016 the FED concluded a two day policy meeting in which they voted for no interest rate increase, as expected. On Thursday a couple of interest rate hawks who are members of the FED spoke out and opined that the economy had strengthened and inflation was rising. These are two major factors that determine a raise in interest rates. They said, or inferred, that a rate increase was overdue. Even though they are non-voting members of the FED these prognostications scared the crap out of market precipitants, ie banks, hedge funds and other large money managers. These are the folks that move the markets.
The chart above shows us a 394.46 point decline in the market (Dow Jones Industrial Average) on Friday, 9/7/2016.
When I looked at the CME FED Watch Tool on Friday the expectation of a rate in September had moved up from 15 percent to 76 percent. These are the expectations and these are the numbers the market trades on.
Personally I don’t think there will be a rate increase before the election in November because of the effect it would have on the election. I would certainly look at such a move as an attempt to manipulate the result of that election.
For those of you who might have been in doubt about the effect of interest rates, or the expectation of a change in interest rates, you can now lay that thought aside.