Eddy Elfenbein at Crossing Wall Street has a nice post about what the futures market expect (Fed rate hike) and when does it expect it?. Basically Elfenbein is commenting on Bespoke Investment Group’s post, “Countdown to Liftoff“.

First let’s take the original post. Bespoke is using the market data and expert opinions about Fed to estimate the months left for the Fed’s first decision for rate hike. Their model is saying November. They then add, since there is no Fed meeting scheduled for November, so it will be either in October or December when Fed meets. But wait, Fed would most likely to talk about its decision to increase after its meeting. Now, it has not planned a conference in October, so Bespoke thinks rate hike will be either in September or December. They are leaning towards December.

Elfenbein uses Bespoke data and develops a chart showing how the ‘When a Rate Hike Was Expected’ moved up-or-down sine 2013. In the beginning, the market was expecting the first rate-hike to be in the first quarter of 2015. As the data emerged and as the Fed tea-leaves were read, this ‘first-hike’ timeframe was moved. In the middle of 2013, market was expecting rate hike in middle of 2015. By the end of 2013 it was moved to late-2014 then early 2015. Then in 2014 it was again moved to middle of 2015. Then it fluctuated between Q2-to-Q3 2015. Now it is approaching Q4-2015/Q1-2016 timeframe. See the attached chart.

This is not much different from the shifting 10-year US Treasury Yield forecast. Jeffery Gundlach of Double Line presented a chart depicting the 2014 year-end forecast changed since the start of 2013. The forecasts were all over the map from 3.3% onwards. They were almost always 80-40 basis points from the then prevailing rates. Only by the end of 2014 did the forecast start to converge to the eventual year-end rate of 1.97%. But a forecast for such a short time frame – few days – is not that tough.

Let’s see how the Fed rate hike date projection fares.