In recent weeks, several U.S. Federal Reserve Policymakers have commented on a relatively hawkish tone, suggesting market participants are pessimistic on hikes and they could see two to three rate hikes this year.

In addition to that FOMC minutes of April meeting has explicitly mentioned June meeting, suggesting high possibility of a hike in that one.

Market has adjusted sharply to the commentaries and has it in full?

Let’s review the hike probabilities over next few meetings –

Current FED funds rate stands at 0.25-0.5%

• June, 2016 meeting – Market is attaching 70% probability that rates will remain at 0.25-0.5%, and 30% probability that rates will be at 0.5-0.75%
   
• July, 2016 meeting - Market is attaching 42% probability that rates will remain at 0.25-0.5%, 46% probability that rates will be at 0.5-0.75% and 12% probability that rates will be at 0.75-1%

• September, 2016 meeting - Market is attaching 35% probability that rates will remain at 0.25-0.5%, 46% probability that rates will be at 0.5-0.75%, 17% probability that the rates will be at 0.75-1% and only 2% probability that the rates will be at 1-1.25%.
   
• November, 2016 meeting - Market is pricing 33% probability that rates will remain at 0.25-0.5%, 45% probability that rates will be at 0.5-0.75%, 19% probability that the rates will be at 0.75-1% and only 3% probability that the rates will be at 1-1.25%.
   
• December, 2016 meeting - Market is pricing 24% probability that rates will remain at 0.25-0.5%, 42% probability that rates will be at 0.5-0.75%, 26% probability that the rates will be at 0.75-1% and 7% probability that the rates will be at 1-1.25% and only 1% probability that rates will be at 1.25-1.5%.

Hike expectations have really shifted north in recent weeks, but still a bit far from pricing a hike in June or two hikes this year. As of now market is pricing just about 30% chance of a hike in June and only 34% chance of second hike in December.