What's the Real Consensus for Real Rates?

It's that time of the year again, to be sure, where turning on financial news television means most guests are questioned about their outlooks for the new year. 

Certainly, given everything that has happened in 2020, there is much to opine on for 2021 in markets.

But I have noticed the topic of rates to be a hot one of late. And it is fair to say that a good deal of market players and pundits alike expect higher rates going forward.

After such an extended period of time of historically low rates, it is only human nature to grow weary of expecting the same thing over and over again at this point. But there are also a healthy amount of folks who are convinced that higher rates into the new year would be something akin to a mirage in the middle of the desert--Just when we think we have finally arrived at a regime change in markets, things simply stay the same with The Fed locked in to low rates for the next few years, as we will almost assuredly hear Fed Chair Powell reiterate later today with the December FOMC and his press conference. 

My take is that the real factor here is not being discussed at all: It is the rate of change in rates which matters most--If rates move higher rapidly I would take that as a perilous sign for most markets into next year and perhaps beyond, as opposed to a steady rise in rates which would be consistent with healthier global growth and reflation. 

It could be argued, in fact, the only thing which could undermine The Fed's power and plan to keep rates low the next few years would be the bond market itself rebelling in the form of rates moving higher at a very fast rate, which would pressure The Fed to raise sooner than they want and also very likely cause dislocations in equities as Wall Street models quickly adjust to spiking rates, not unlike what we saw briefly last March at one point. 

Thus, on this precise topic we want to pay attention to the rate at which rates rise next year, if at all, for rates spiking at a horrifying rate would be a position which is not yet consensus, or arguably even being considered by most at this point.