Fed Hike aftermath Series: Hike probabilities over coming meetings

FOMC increased interest rates in March and June and increased its forecast from three rate hikes in 2018 to four rate hikes. June decision was unanimous. Current Federal funds rate - 175-200 bps (Note, all calculations are based on data as of 18th June)

• August 2018 meeting: Market is attaching 98 percent probability that rates will be at 1.75-2.00 percent, and 2 percent probability that rates will be at 2.00-2.25 percent.
   
• September 2018 meeting: Market is attaching 15.7 percent probability that rates will be at 1.75-2.00 percent, 82.6 percent probability that rates will be at 2.00-2.25 percent, and 1.7 percent probability that rates will be at 2.25-2.50 percent.
   
• November 2018 meeting: Market is attaching 14.9 percent probability that rates will be at 1.75-2.00 percent, 79.1 percent probability that rates will be at 2.00-2.25 percent, 5.9 percent probability that rates will be at 2.25-2.50 percent, and 0.1 percent probability that rates will be at 2.50-2.75 percent.
   
• December 2018 meeting: Market is attaching 5.9 percent probability that rates will be at 1.75-2.00 percent, 40.4 percent probability that rates will be at 2.00-2.25 percent, 50.1 percent probability that rates will be at 2.25-2.50 percent, and 3.7 percent probability that rates will be at 2.50-2.75 percent.
   
• January 2019 meeting: Market is attaching 5.3 percent probability that rates will be at 1.75-2.00 percent, 37.1 percent probability that rates will be at 2.00-2.25 percent, 49.1 percent probability that rates will be at 2.25-2.50 percent, and 8.1 percent probability that rates will be at 2.50-2.75 percent, and 0.4 percent probability that rates will be at 2.75-3.00 percent.
   

The probability is suggesting,

• Since our last review a week ago, the probabilities have spiked sharply.
• The market is pricing the third hike for 2018 in September and pricing it with 83.3 percent probability compared to 67.4 percent a week ago.
• The market is pricing the fourth hike in December with 53.4 percent probability instead of 41.4 percent probability just a week ago.

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