In recent times, several Fed policymakers have either toned down their hawkish expectations or turned dovish. In light of that, let’s take a look at the market pricing of hikes. There were several speakers this week alone, including Fed Chair Janet Yellen. The current interest rate is at 1.00-1.25 percent. (Note, all calculations are based on data as of 27th June)
- July 26th meeting: Market is attaching 97 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.
. - September 20th meeting: Market is attaching 81.5 percent probability that rates will be at 1.00-1.25 percent, 18 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.
- November 1st meeting: Market is attaching 80 percent probability that rates will be at 1.00-1.25 percent, 19 percent probability that rates will be at 1.25-1.50 percent, and 1 percent probability that rates will be at 1.50-1.75 percent.
- December 13th meeting: Market is attaching 42.8 percent probability that rates will be at 1.00-1.25 percent, 47.5 percent probability that rates will be at 1.25-1.50 percent, 9.4 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.
The probability is suggesting,
- Despite some of the dovish tone remarks from the Federal Reserve officials, the financial market is currently pricing a third hike in December 57.3 percent probability.
- Compared to our last month’s review, the hike probabilities have shifted upwards.