The market is hellbent on believing that by June of next year the first 25 will have been lopped off the funds rate. The Fed, erstwhile managers of market opinion, will let the market know whether to hold to this view on Tuesday. Poole gives a 12:30 talk in Philadelphia and then, as if he arranged a second chance for the market to get it right, he is to speak on Thursday at a CATO conference on the Fed. Other members of the Fed tribe will be out on the hustings as well, but Poole has been the best at setting the market straight.
Tuesday is also the date for the release of October PPI and Retail Sales. The October number will be used as an indicator of Christmas sales, as it comes on the heels of lower gas prices and some softening in consumer optimism. CPI is reported on Thursday.
Data plus the Fed means market volatility. Table below outlines the risks entailed. Market is pretty much set at the Poole scenario (things work out as we expect and we will give 25 back). But if we move back to 0%, there is 34 basis points of risk in the 2-year. To be forewarned . . . . . .