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 3rd September)

• September 2018 meeting: Market is attaching 1.6 percent probability that rates will be at 1.75-2.00 percent, and 98.4 percent probability that rates will be at 2.00-2.25 percent.
   
• November 2018 meeting: Market is attaching 1.6 percent probability that rates will be at 1.75-2.00 percent, and 98.4 percent probability that rates will be at 2.00-2.25 percent.
   
• December 2018 meeting: Market is attaching 0.4 percent probability that rates will be at 1.75-2.00 percent, 28.4 percent probability that rates will be at 2.00-2.25 percent, and 71.2 percent probability that rates will be at 2.25-2.50 percent.
   
• January 2019 meeting: Market is attaching 0.4 percent probability that rates will be at 1.75-2.00 percent, 27.2 percent probability that rates will be at 2.00-2.25 percent, 69.3 percent probability that rates will be at 2.25-2.50 percent, and 3 percent probability that rates will be at 2.50-2.75 percent.
   
• March 2019 meeting: Market is attaching 0.2 percent probability that rates will be at 1.75-2.00 percent, 13.4 percent probability that rates will be at 2.00-2.25 percent, 47.6 percent probability that rates will be at 2.25-2.50 percent, and 37.3 percent probability that rates will be at 2.50-2.75 percent, and 1.6 percent probability that rates will be at 2.75-3.00 percent.
   
• May 2019 meeting: Market is attaching 0.2 percent probability that rates will be at 1.75-2.00 percent, 11.8 percent probability that rates will be at 2.00-2.25 percent, 43.5 percent probability that rates will be at 2.25-2.50 percent, and 38.5 percent probability that rates will be at 2.50-2.75 percent, and 6.1 percent probability that rates will be at 2.75-3.00 percent.
   
• June 2019 meeting: Market is attaching 0.1 percent probability that rates will be at 1.75-2.00 percent, 8.3 percent probability that rates will be at 2.00-2.25 percent, 34 percent probability that rates will be at 2.25-2.50 percent, and 40 percent probability that rates will be at 2.50-2.75 percent, 15.7 percent probability that rates will be at 2.75-3.00 percent, 2 percent probability that rates will be at 3.00-3.25 percent.
   

The probability is suggesting,

• Since our last review a week ago, the probabilities have tightened.
• The market is pricing the third hike for 2018 in September and pricing it with 98.4 percent probability, up from 96 percent a week ago.
• The market is pricing the fourth hike in December with 71.2 percent probability compared to 66.1 percent a week ago.
• The first rate hike of 2019 is priced in June with 59.7 percent probability, instead of 57.4 percent probability just a week ago.