The obvious thing to say is that a June hike is out.  But I don’t think they can even begin to have the discussion where July is a likely candidate for a hike.  As I mentioned in the email, we only have 1 payroll left before the July meeting.  I just don’t think that is going to be enough to provide confidence in a hike.  What’s the rush?  It’s not like the data has been good this year.  And I think when you get slapped in the face, you need to take a little more time to reassess.  You would think the more intelligent people on the Fed would pause and say, “Shucks!  We almost made a terrible mistake.  Let’s wait for more data confirmation this time.”  George will still probably dissent.  Take away what you will from those last few sentences.

And if you believe in the “two step hike,” where the Fed says in the statement at the first meeting that: (1) the risks are balanced, or even stronger – (2) do what they did in the October 2015 meeting and imply they could hike at the next meeting, then I don’t see how this discussion can happen at the June meeting.  How can either of these two things even be a serious consideration in June?!?  It can’t.  So it seems like the only way a July hike can happen is if the one month of data is so amazing they want to hike without preparing the markets via the June statement.  This seems unlikely.  This is why I like owning the EDU 91 call structures.

Yellen speaks Monday, but I don’t think she will say anything useful.  We’re still growing, and she generally doesn’t overreact to one piece of data.  If she says something related to “coming months” that would be a big deal for the hawks.  My best guess is she continues to emphasize “gradual and cautious.”

 

[This was originally published on June 6, 2015]