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Fed Hike Aftermath Series: Hike odds slip as treasuries gain

As expected, the US Federal Reserve hiked interest rate by 25 basis points in its March meeting. However, as the geopolitical tensions rise around the world and inflation readings came weaker than expected in March, the market is repricing the hikes for 2017 (note, all calculations are based on data as of 18th April)

  • 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 55 percent probability that rates will be at 0.75-1.00 percent, 42 percent probability that rates will be at 1.00-1.25 percent, and 3 percent probability that rates will be at 1.25-1.50 percent.
  • July 26th meeting: Market is attaching 49.8 percent probability that rates will be at 0.75-1.00 percent, 44 percent probability that rates will be at 1.00-1.25 percent, 6 percent probability that rates will be at 1.25-1.50 percent, and 0.2 percent probability that rates will be at 1.50-1.75 percent.
  • September 20th meeting: Market is attaching 36.3 percent probability that rates will be at 0.75-1.00 percent, 45.4 percent probability that rates will be at 1.00-1.25 percent, 16.4 percent probability that rates will be at 1.25-1.50 percent, 2 percent probability that rates will be at 1.50-1.75 percent, and 0.2 percent probability that rates will be at 1.75-2.00 percent.
  • November 1st meeting: Market is attaching 35 percent probability that rates will be at 0.75-1.00 percent, 45 percent probability that rates will be at 1.00-1.25 percent, 17.6 percent probability that rates will be at 1.25-1.50 percent, 2 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 24 percent probability that rates will be at 0.75-1.00 percent, 42 percent probability that rates will be at 1.00-1.25 percent, 26 percent probability that rates will be at 1.25-1.50 percent, 7 percent probability that rates will be at 1.50-1.75 percent, and 1 percent probability that rates will be at 1.75-2.00 percent.

The probability is suggesting,

  • The probability distribution has changed a lot over the past month and it is strongly suggesting that the market is taking a cautious approach towards the path of rate hikes from the US Federal Reserve. On an average, rate hike odds have been pushed back by a little more than 10 percent.
  • We suspect that if the price of oil tumbles further and the inflation readings continue to come weaker than expected then the rate hikes would slip further.
  • The market is now pricing just one more hike for 2017, instead of two more, just a month ago. The next hike pricing got pushed back from June to July.
  • ET PRO
  • Market Data

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August 23 15:30 UTC Released

BRForeign Exchange Flows*

Actual

3.435 Bln USD

Forecast

Previous

2.528 Bln USD

August 23 14:00 UTC Released

USNew Home Sales Chg MM*

Actual

-9.4 %

Forecast

0.3 %

Previous

0.8 %

August 23 23:50 UTC 484484m

JPForeign Bond Investment

Actual

Forecast

Previous

-145.5 bln JPY

August 23 23:50 UTC 484484m

JPForeign Invest JP Stock

Actual

Forecast

Previous

-302.5 bln JPY

August 24 00:00 UTC 494494m

ARTrade Balance*

Actual

Forecast

-495 mln $

Previous

-748 mln $

August 24 06:45 UTC 899899m

FRBusiness Climate

Actual

Forecast

108 %

Previous

109 %

August 24 08:30 UTC 10041004m

GBGDP 2nd Release QQ

Actual

Forecast

0.3 %

Previous

0.3 %

August 24 08:30 UTC 10041004m

GBGDP 2nd Release YY

Actual

Forecast

1.7 %

Previous

1.7 %

August 24 08:30 UTC 10041004m

GBBusiness Invest QQ Prelim

Actual

Forecast

0.4 %

Previous

0.6 %

August 24 08:30 UTC 10041004m

GBBusiness Invest YY Prelim

Actual

Forecast

0.5 %

Previous

0.7 %

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