Fed Hike aftermath Series: Hike probabilities over coming meetings

FOMC increased interest rates in March, June and in September. Increased its forecast from three rate hikes in 2018 to four rate hikes. September decision was unanimous. Current Federal funds rate - 200-225 bps (Note, all calculations are based on data as of 22nd October)

• November 2018 meeting: Market is attaching 94.1 percent probability that rates will be at 2.00-2.25 percent, and 5.9 percent probability that rates will be at 2.25-2.50 percent.
   
• December 2018 meeting: Market is attaching 16.3 percent probability that rates will be at 2.00-2.25 percent, 78.8 percent probability that rates will be at 2.25-2.50 percent, and 4.9 percent probability that rates will be at 2.50-2.75 percent.
   
• January 2019 meeting: Market is attaching 15.3 percent probability that rates will be at 2.00-2.25 percent, 74.8 percent probability that rates will be at 2.25-2.50 percent, and 9.9 percent probability that rates will be at 2.50-2.75 percent.
   
• March 2019 meeting: Market is attaching 5.8 percent probability that rates will be at 2.00-2.25 percent, 37.9 percent probability that rates will be at 2.25-2.50 percent, and 50 percent probability that rates will be at 2.50-2.75 percent, and 6.3 percent probability that rates will be at 2.75-3.00 percent.
   
• May 2019 meeting: Market is attaching 5.5 percent probability that rates will be at 2.00-2.25 percent, 36 percent probability that rates will be at 2.25-2.50 percent, and 49.3 percent probability that rates will be at 2.50-2.75 percent, and 9.2 percent probability that rates will be at 2.75-3.00 percent.
   
• June 2019 meeting: Market is attaching 2.5 percent probability that rates will be at 2.00-2.25 percent, 19.7 percent probability that rates will be at 2.25-2.50 percent, and 42.2 percent probability that rates will be at 2.50-2.75 percent, 30.4 percent probability that rates will be at 2.75-3.00 percent, 5.2 percent probability that rates will be at 3.00-3.25 percent.
   
• July 2019 meeting: Market is attaching 2.3 percent probability that rates will be at 2.00-2.25 percent, 18.3 percent probability that rates will be at 2.25-2.50 percent, and 40.3 percent probability that rates will be at 2.50-2.75 percent, 31.3 percent probability that rates will be at 2.75-3.00 percent, 7 percent probability that rates will be at 3.00-3.25 percent, and 0.7 percent probability that rates will be at 3.25-3.50 percent.
   
• September 2019 meeting: Market is attaching 1.6 percent probability that rates will be at 2.00-2.25 percent, 13.1 percent probability that rates will be at 2.25-2.50 percent, and 33.2 percent probability that rates will be at 2.50-2.75 percent, 34.2 percent probability that rates will be at 2.75-3.00 percent, 14.9 percent probability that rates will be at 3.00-3.25 percent, and 2.9 percent probability that rates will be at 3.25-3.50 percent.
   
• October 2019 meeting: Market is attaching 1.5 percent probability that rates will be at 2.00-2.25 percent, 12.6 percent probability that rates will be at 2.25-2.50 percent, and 32.4 percent probability that rates will be at 2.50-2.75 percent, 34.2 percent probability that rates will be at 2.75-3.00 percent, 15.7 percent probability that rates will be at 3.00-3.25 percent, and 3.5 percent probability that rates will be at 3.25-3.50 percent.
   

The probability is suggesting,

• Since our last review a week ago, the probabilities have tightened for both near and far months.
• The market is pricing the fourth hike in December with 83.7 percent probability compared to 79.6 percent a week ago.
• The first rate hike of 2019 is priced in March with 56.3 percent probability, compared to 54.2 percent a week ago.
• The second hike for 2019 is now priced in September with a 52 percent probability, compared to 50.1 percent a week ago.