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 5th November)

• November 2018 meeting: Market is attaching 92.8 percent probability that rates will be at 2.00-2.25 percent, and 7.2 percent probability that rates will be at 2.25-2.50 percent. .
   
• December 2018 meeting: Market is attaching 22.5 percent probability that rates will be at 2.00-2.25 percent, 72.1 percent probability that rates will be at 2.25-2.50 percent, and 5.4 percent probability that rates will be at 2.50-2.75 percent.
   
• January 2019 meeting: Market is attaching 21.5 percent probability that rates will be at 2.00-2.25 percent, 70 percent probability that rates will be at 2.25-2.50 percent, and 8.5 percent probability that rates will be at 2.50-2.75 percent.
   
• March 2019 meeting: Market is attaching 7.6 percent probability that rates will be at 2.00-2.25 percent, 38.7 percent probability that rates will be at 2.25-2.50 percent, and 48.1 percent probability that rates will be at 2.50-2.75 percent, and 5.6 percent probability that rates will be at 2.75-3.00 percent.
   
• May 2019 meeting: Market is attaching 6.8 percent probability that rates will be at 2.00-2.25 percent, 35.6 percent probability that rates will be at 2.25-2.50 percent, and 47.2 percent probability that rates will be at 2.50-2.75 percent, and 10.4 percent probability that rates will be at 2.75-3.00 percent.
   
• June 2019 meeting: Market is attaching 3.4 percent probability that rates will be at 2.00-2.25 percent, 21.2 percent probability that rates will be at 2.25-2.50 percent, and 41.4 percent probability that rates will be at 2.50-2.75 percent, 28.4 percent probability that rates will be at 2.75-3.00 percent, 5.5 percent probability that rates will be at 3.00-3.25 percent.
   
• July 2019 meeting: Market is attaching 3.1 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 39.7 percent probability that rates will be at 2.50-2.75 percent, 29.5 percent probability that rates will be at 2.75-3.00 percent, 7.1 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 2.1 percent probability that rates will be at 2.00-2.25 percent, 14.4 percent probability that rates will be at 2.25-2.50 percent, and 33.3 percent probability that rates will be at 2.50-2.75 percent, 32.8 percent probability that rates will be at 2.75-3.00 percent, 14.3 percent probability that rates will be at 3.00-3.25 percent, and 3.1 percent probability that rates will be at 3.25-3.50 percent.
   
• October 2019 meeting: Market is attaching 2 percent probability that rates will be at 2.00-2.25 percent, 13.6 percent probability that rates will be at 2.25-2.50 percent, and 32 percent probability that rates will be at 2.50-2.75 percent, 32.8 percent probability that rates will be at 2.75-3.00 percent, 15.5 percent probability that rates will be at 3.00-3.25 percent, and 3.9 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 tightened for both near and far months.
• The market is pricing a fourth hike in December with 77.5 percent probability compared to 70.1 percent a week ago.
• The first rate hike of 2019 is priced in March with 53.7 percent probability, compared to 43.1 percent a week ago.
• The second hike for 2019 is now priced in September with a 50.2 percent probability, compared to 37.2 percent a week ago. 
• The better than expected economic numbers such as the NFP report has pushed the probabilities higher.