A Little Perspective: Will Next Month Be the First Interest Rate Increase Since 2006?

kd1(Source: CME Group)

As of 11/12/2015 the market is pricing in about a 64% chance of a 25 basis point rate increase at the next FOMC meeting which concludes on 12/16/2015.

If Janet Yellen and the other voting members of the Federal Reserve choose to “liftoff” next month, it will be the first interest rate increase in the US since June 29, 2006.

  • 9 Years 5 months and 17 days will have elapsed.
  • That’s 3457 days.
  • In 2006, GM reached its zenith with Hummer sales. 71,524 units in the United States alone – the most ever. (Source: Automakers and AutoNews Data Center).
  • Back then, it is unlikely you had heard of a Credit Default Swap, Collateralized Loan Obligation, and perhaps not Subprime lending.
  • An aspiring Medical Student starting their undergrad in 2006 would nearly be done with their residency at this point.
  • A newborn in summer of 2006 would likely be in 4th
  • In October of 2006, Martin Scorsese released, and subsequently won a Best Picture Oscar for The Departed. (Editorial Note: Scorsese was robbed by The Academy in 1977 when Rocky beat out Taxi Driver and again in 1991 when Dances With Wolves knocked off Goodfellas).
  • Since 2006 the Chicago Blackhawks have won 3 Stanley Cups.

The S&P 500 was right around 1450 at the end of June 2006 prior to the last Federal Reserve rate hike. The VIX was just below 15 at the same point in time.

As of the 11/12/2015 close the S&P 500 is trading 2045 and the VIX is just above 18.

Some “regime changes” are perfectly peaceful…..others are not.

If the market is correct and regime change begins in a month, perhaps the volatility experienced in August and September will not be a one off. As with all things – time will tell.

kd2(Source: St. Louis Federal Reserve)

Post written by Kevin Davitt, CBOE Options Institute