Long-time relationship may be headed for the rocks
by Greg Robb
Like celebrities who went to Las Vegas in the 1950s to get quick divorces, the Federal Reserve could be going to Jackson Hole this week to prepare to divorce policy from financial markets.
In a way, the Fed’s relationship with the markets can be boiled down to a simple rule: the U.S. central bank is happy to surprise markets when it is easing policy but has never surprised the market with a rate hike.
But the Fed may be preparing to end this relationship, especially given the recent behavior of financial markets with interest rates so low.
Despite some fairly clear warnings that September is a “live” meeting. the market continues to see only a 24% probability of a rate hike in September, according to the CME’s Fed Watch tool.