The remarkable thing about the [take your pick: lackluster, weak, stinky] fourth quarter GDP report was how little impact it had on market sentiment. One widely shared explanation is this one, from Forbes:
U.S. stocks ended higher Friday, wrapping up a solid week of gains for the market after strong earnings reports...
The market also received support from a gross domestic product report showing the U.S. economy slowing more than expected in the fourth quarter. The data raised hopes among some investors that the Federal Reserve may end its string of interest-rate hikes sooner rather than later.
If that is really true, then "later" must have extended at least past the March FOMC meeting. The probabilities for different FOMC decisions, estimated as always from the market for options on fed funds futures, moved in, let's say, interesting ways. Phone in tomorrow...
... and feel pretty confident about another 25 basis points in March:
This week we add new estimates for the May meeting. If you are waiting for a pause, the odds at the moment say see you then:
For the cognoscenti, the May probabilities were estimated using the techniques required for dealing with joint FOMC meetings described in Carlson, Craig, and Melick (2005). If you are in the group that might care about that, you might be in the group that likes to see the data as well:
Download Imp_pdf_slides_for_blog_012706.ppt
Download implied_pdf_january_012706.xls