Why the Fed Is a Total Mystery Right Now

As US economic data has generally slumped as of late, traders have pulled back on their rate hike expectations relative to last week.

You can see the trend in this chart plotting implied Fed rate hike odds for each of the next 5 FOMC rate decisions:

Traders are now pricing in a 48.8% chance of a December rate hike, down from about 60% last week.

That means we're right back to being split down the middle.

Some traders were also thinking the September 21 meeting was “live.”

Now it looks like that's off the table, as a mere 20% probability is being priced in.

Unfortunately, we may not get much clarity soon.

This week's US economic calendar is pretty much empty.

The next big releases are the August retail sales report next Thursday 9/15 (plus industrial production that day), and August CPI on Friday 9/16.

And there isn't much else between those reports and the next FOMC rate decision on September 21.

So what else do we have to look at?

Well, we have Fed officials Rosengren, Kaplan, Lockhart, and Kashkari out chattering over the next week.

But only Rosengren is a current voting member of the FOMC.

And besides, it's getting harder and harder to reconcile all the hawkish chatter with the concurrent decline in US economic data.

Check out this chart of the Citi US Economic Surprise Index, which measures economic data relative to expectations.

The trend turned down hard with the weak Q2 GDP report on July 29, and it's looking pretty sorry.