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. Three more rate hikes are projected in 2019. September decision was unanimous. Current Federal funds rate - 200-225 bps (Note, all calculations are based on data as of 29th October)

• November 2018 meeting: Market is attaching 96.1 percent probability that rates will be at 2.00-2.25 percent, and 3.9 percent probability that rates will be at 2.25-2.50 percent.
   
• December 2018 meeting: Market is attaching 29.9 percent probability that rates will be at 2.00-2.25 percent, 67.4 percent probability that rates will be at 2.25-2.50 percent, and 2.7 percent probability that rates will be at 2.50-2.75 percent.
   
• January 2019 meeting: Market is attaching 28.6 percent probability that rates will be at 2.00-2.25 percent, 65.8 percent probability that rates will be at 2.25-2.50 percent, and 5.6 percent probability that rates will be at 2.50-2.75 percent.
   
• March 2019 meeting: Market is attaching 12.4 percent probability that rates will be at 2.00-2.25 percent, 44.7 percent probability that rates will be at 2.25-2.50 percent, and 39.8 percent probability that rates will be at 2.50-2.75 percent, and 3.3 percent probability that rates will be at 2.75-3.00 percent.
   
• May 2019 meeting: Market is attaching 11.4 percent probability that rates will be at 2.00-2.25 percent, 42.1 percent probability that rates will be at 2.25-2.50 percent, and 40.2 percent probability that rates will be at 2.50-2.75 percent, and 6.4 percent probability that rates will be at 2.75-3.00 percent.
   
• June 2019 meeting: Market is attaching 6.1 percent probability that rates will be at 2.00-2.25 percent, 27.7 percent probability that rates will be at 2.25-2.50 percent, and 41.1 percent probability that rates will be at 2.50-2.75 percent, 22 percent probability that rates will be at 2.75-3.00 percent, 3.1 percent probability that rates will be at 3.00-3.25 percent.
   
• July 2019 meeting: Market is attaching 5.6 percent probability that rates will be at 2.00-2.25 percent, 26 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, 23.6 percent probability that rates will be at 2.75-3.00 percent, 4.6 percent probability that rates will be at 3.00-3.25 percent, and 0.4 percent probability that rates will be at 3.25-3.50 percent.
   
• September 2019 meeting: Market is attaching 4.4 percent probability that rates will be at 2.00-2.25 percent, 21.5 percent probability that rates will be at 2.25-2.50 percent, and 36.9 percent probability that rates will be at 2.50-2.75 percent, 27.1 percent probability that rates will be at 2.75-3.00 percent, 8.7 percent probability that rates will be at 3.00-3.25 percent, and 1.4 percent probability that rates will be at 3.25-3.50 percent.
   
• October 2019 meeting: Market is attaching 4.2 percent probability that rates will be at 2.00-2.25 percent, 20.8 percent probability that rates will be at 2.25-2.50 percent, and 36.2 percent probability that rates will be at 2.50-2.75 percent, 27.5 percent probability that rates will be at 2.75-3.00 percent, 9.5 percent probability that rates will be at 3.00-3.25 percent, and 1.8 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 significantly eased for both near and far months.
• The market is pricing the fourth hike in December with 70.1 percent probability compared to 83.7 percent a week ago.
• The first rate hike of 2019 is priced in March with 43.1 percent probability, compared to 56.3 percent a week ago.
• The second hike for 2019 is now priced in September with a 37.2 percent probability, compared to 52 percent a week ago. 
• The financial market turmoil coupled with the expectation of a slowdown in the economy is likely to be behind the move.