Following two days of testimony (and the WSJ editorial) from Bernanke where he repeated that interest rates will stay low for an extended period of time, that inflation will remain subdued for a few years more and that unemployment will remain elevated for a period of time, the odds of a year end rate hike are down to 13% from 27% one week ago and 46% one month ago. A 25 bps hike to .50% is not fully expected until the March ’10 meeting. The January ’10 meeting rate hike odds are at 60%. In the discussion on exit strategies too over the past few days, ending QE and many of its liquidity facilities will be a cake walk compared to normalizing the fed funds rate in terms of its impact on the economy.
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