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The US Federal Reserve is set to announce its interest rate decision tomorrow. In March, it has forecasted two more hikes of 25 basis points each, after increasing rates by 25 basis points in that meeting. However, as the geopolitical tensions rise around the world and inflation readings came weaker than expected across the globe, the market is re-pricing the hikes for 2017. The current interest rate is at 0.75-1.00 percent. (Note, all calculations are based on data as of 2nd May)
- May 3rd meeting: Market is attaching 95 percent probability that rates will be at 0.75-1.00 percent, and 5 percent probability that rates will be at 1.00-1.25 percent.
- June 14th Meeting: Market is attaching 29 percent probability that rates will be at 0.75-1.00 percent, 67 percent probability that rates will be at 1.00-1.25 percent, and 4 percent probability that rates will be at 1.25-1.50 percent.
- July 26th meeting: Market is attaching 26 percent probability that rates will be at 0.75-1.00 percent, 63 percent probability that rates will be at 1.00-1.25 percent, 10.5 percent probability that rates will be at 1.25-1.50 percent, and 0.5 percent probability that rates will be at 1.50-1.75 percent.
. - September 20th meeting: Market is attaching 15 percent probability that rates will be at 0.75-1.00 percent, 48 percent probability that rates will be at 1.00-1.25 percent, 32 percent probability that rates will be at 1.25-1.50 percent, 4.5 percent probability that rates will be at 1.50-1.75 percent, and 0.5 percent probability that rates will be at 1.75-2.00 percent.
- November 1st meeting: Market is attaching 15 percent probability that rates will be at 0.75-1.00 percent, 47 percent probability that rates will be at 1.00-1.25 percent, 32 percent probability that rates will be at 1.25-1.50 percent, 5.6 percent probability that rates will be at 1.50-1.75 percent, and 0.4 percent probability that rates will be at 1.75-2.00 percent.
- December 13th meeting: Market is attaching 10 percent probability that rates will be at 0.75-1.00 percent, 36 percent probability that rates will be at 1.00-1.25 percent, 37 percent probability that rates will be at 1.25-1.50 percent, 15 percent probability that rates will be at 1.50-1.75 percent, and 2 percent probability that rates will be at 1.75-2.00 percent.
The probability is suggesting,
- After pricing just one rate hike for the rest of the year 2017, the market is finally back again pricing two more hikes for the year, in line with the Fed’s forecast.
- The market is currently pricing the next hike to be delivered at the June meeting with 71 percent probability and the final hike to be delivered in December with 54.5 percent probability.
